European Bank HSBC Looks to Offset Sub-prime Losses; Growth Strategy in Buying Stakes in India and Vietnam Insurers
Europe’s largest bank, HSBC Holdings Plc, is looking to its insurance units in Asia to help offset losses and restore profit growth after a $15.5 billion expansion into U.S. sub-prime lending went awry.
HSBC earned $1.6 billion from insurance in the first half of 2007 and plans to double the division's profit in five years. The London-based bank agreed this week to buy stakes in insurers in India and Vietnam. Earnings from the U.S., where HSBC acquired Household International Inc. in 2002 in its biggest takeover, fell 43 percent in the first six months of this year.
“Insurance is a genuine growth opportunity,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who has a `”hold'' rating on HSBC shares. "It is also a good distraction from the problems they are having in the U.S.''
Chairman Stephen Green is under pressure to improve shareholder returns, which have trailed Spain's Banco Santander SA and UBS AG of Switzerland, HSBC's biggest European competitors, since it bought Household. Knight Vinke Asset Management, the investor that campaigned to block Suez SA's merger with Gaz de France SA, asked Green and HSBC's board last week for a "fundamental review'' of strategy and management.
Green named former private banking head Clive Bannister to oversee insurance last year. The bank plans to increase earnings at the unit to 20 percent of profit by 2012 from about 10 percent last year, with much of the growth coming from Asia.
HSBC, which owns 17 percent of Ping An Insurance (Group) Co., China's No. 2 insurer, announced plans yesterday to buy 10 percent of Bao Viet Insurance & Finance Group, Vietnam's biggest state-owned insurer, for $255 million. The company has the option to buy 8 percent more of Hanoi-based Bao Viet after 18 months. Today, the bank said it had applied for a license to set up a life insurance company in China.
In addition, HSBC on Sept. 10 stated it had reached an agreement with India's state-run Canara Bank and Oriental Bank of Commerce to create a life insurer in that country, where insurance sales increased more than 20 percent annually for the past five years. It will invest $43.6 million for 26 percent of the company.
Asia accounted for a third of the profit at HSBC's insurance division in the first half, compared with 30 percent in Europe, 21 percent in North America and 16 percent in Latin America.
Published on September 14, 2007
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