HSBC Holdings Plc (HBC) announced that its Saudi Arabian wholesale and investment banking unit, HSBC Saudi Arabia, would merge with SABB Securities Ltd., a wholly-owned brokerage and custody business unit of The Saudi British Bank. However, the company did not disclose the terms of the deal.
HSBC will have a 49% stake in the new entity, which will be named HSBC Saudi Arabia Ltd. Although the remaining 51% stake will be held by SABB, HSBC will have a full management control of the new company.
HSBC commented that that the new entity would be a full investment banking company and provide asset management, advisory and debt capital market activities.
HSBC further stated that as of December 31, 2010, HSBC Saudi Arabia and SABB combined had total gross assets worth $188 million. The merger, which is still subject to regulatory approvals, is expected to close by the end of this year.
It is important to note that HSBC has been trying to restructure its businesses globally through mergers and divestures. On June 13, the company’s CEO had announced that it would windup its $33 billion U.S. credit card unit if it could not find a suitable purchaser.
Some of the likeliest companies that can be interested in buying some of the company’s card assets include Capital One Financial Corp. (COF) and Barclays Plc (BCS).
Moreover, on June 14, HSBC sold a part of its Russian banking business to Citigroup Inc. (C). The sale, which is expected to be completed in the third quarter of 2011, involves assets worth about $10.7 million.
We expect such strategic mergers and sales of business units to remove non-core assets from HSBC’s balance sheet, thereby enhancing the company’s capital strength over the medium term.
HSBC currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
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