HSBC Close To Dropping Nedbank Deal

HSBC close to dropping Nedbank deal
By Patrick Jenkins and Paul J Davies in London
Published: October 14 2010 23:04 | Last updated: October 14 2010 23:04
HSBC is close to walking away from a £5bn ($8bn) plan to buy Nedbank in South Africa, after a two-month period of exclusive talks with majority owner Old Mutual expires this weekend.

The bank is not in a position to make an offer for Nedbank before the period of exclusivity finishes, according to people close to the UK group.

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They said due diligence on the South African bank’s operations had proved more complex than expected.

The bank could retain an interest in Nedbank, but it would face competition from rival bidders.

That could leave the way clear for UK rival Standard Chartered to gain the upper hand in the bidding to buy Nedbank, HSBC executives conceded. StanChart had previously been interested in buying Nedbank.

However, StanChart is in an awkward spot after it announced a £3.3bn rights issue and stressed the funds were to build up its capital reserves in line with new international regulations.

“This is not a war chest for acquisitions,” Peter Sands, StanChart’s chief executive, told the Financial Times on Wednesday, insisting his focus was on organic growth.

The wording in the rights issue documents would make it difficult to divert funds to back an acquisition, advisers to the bank said.

However, one banker close to StanChart said: “If HSBC walked away and if Old Mutual’s price expectations came down, then who knows?”

HSBC’s interest in Nedbank was orchestrated by chief executive Michael Geoghegan as a means to secure a stronghold in the fast-growing African market.

But bankers say Nedbank’s retail business, built up aggressively a few years ago, contains credit risks HBSC might find hard to stomach. It is still suffering losses on the legacy operations of its disastrous acquisition of US consumer lender Household.

The bank’s cautious approach has been heightened by HSBC’s management changeover, with Stuart Gulliver and Douglas Flint recently named as the next chief executive and chairman, to replace Mr Geoghegan and Stephen Green as of the year-end.

If HSBC did drop out of the bidding, StanChart executives say the price Old Mutual could expect for its stake would have to fall below the 15 per cent premium to Nedbank’s market price, which bankers have said was a benchmark.

That valuation puts a price tag of about £5bn on the 70 per cent stake that is for sale.

If both bidders drop away from Nedbank, it would be a blow to Old Mutual, which has plans to shrink and refocus its businesses and use the proceeds from a sale to help pay down £1.5bn of debt it has targeted to get rid of as quickly as possible.

Some of Old Mutual’s biggest investors have long wanted to see the Anglo-South African group offload its 52 per cent stake in Nedbank as part of a break-up of its conglomerate structure to refocus on European and South African savings businesses.

Old Mutual declined to comment.