HSBC ends talks on taking $8 bn Nedbank stake

15 October 2010

HSBC has ended talks to buy an $8 billion majority stake in South Africa's Nedbank, leaving a hole in its African strategy and handing an opportunity to rival Standard Chartered.

HSBC had been in exclusive talks with Anglo-South African insurer Old Mutual to buy up to 70 percent of Nedbank, South Africa's fourth-largest bank, and an eight-week period of exclusivity was due to end on Monday. The end of talks leaves HSBC, Europe's biggest bank, without a convincing Africa strategy and could hand rival Standard Chartered a chance to buy Nedbank, analysts said.

Standard Chartered has held talks to buy the stake before, sources have said. The bank said after unveiling a $5.3 billion rights issue on Wednesday that the funds were not for big acquisitions but rather for organic growth and to meet tough capital requirements.

Neither HSBC nor Old Mutual said why the talks broke down, though the insurer said that, as far as it was aware, it was not due to adverse findings during due diligence.

At 0950 GMT shares in Nedbank in Johannesburg were down 8.9 percent and Old Mutual down 5.7 percent in London. Shares in HSBC were up 0.4 percent and StanChart's dipped 0.2 percent. Nedbank's troubled retail unit could contain credit risks that might be a concern for HSBC, analysts said.

HSBC has a limited presence in Africa and had seen the deal as a launchpad to expand there, especially as trade between Africa and China increases. But since talks began, the bank has announced a change in chairman and chief executive after a boardroom power struggle.

"The talks were undertaken on the premise that it would have given it optionality for growth in Africa," said Andrew Lim, analyst at Matrix in London. "However, that was under the intentions of (outgoing CEO) Michael Geoghegan, and with the new management in place they might have thought that following through on the acquisition was too risky, given the potential loan losses and lack of certainty on the loan book."

Johann Scholtz, banking analyst at Afrifocus Securities, also said missing Nedbank would hurt its Africa plans: "Nedbank would probably be their cheapest entry point into Africa and probably their least risky entry point. "If they are concerned about the risk in Nedbank's book, then they are obviously not going into some of those Nigerian banks or some of those sub-Saharan banks." The breakdown of talks is a setback for Old Mutual, which had hoped to offload its Nedbank stake as part of a strategy to refocus on insurance and asset management.

The company, a sprawling conglomerate spanning 35 countries, is under pressure from its biggest shareholders to reorganise amid concerns its complexity has held back its share price. LONDON/JOHANNESBURG (Reuters)