There is no need to tap shareholders

IN the battle to become banker to the emerging markets, HSBC has won an important victory over Standard Chartered, its closest strategic rival. Having entered exclusive talks to buy Old Mutual out of Nedbank, HSBC looks set to take control of the South African bank. The logic of such a deal is not in doubt: Africa is an important piece in the emerging markets jigsaw puzzle, thanks to strong growth potential and significant trade flows with Asia. As the continent’s most developed economy, South Africa allows HSBC – which has virtually no African presence – to begin its explorations in relative safety.

HSBC is notoriously circumspect when it comes to hoarding excess capital, and rightly so in today’s regulatory climate. But investors will want it to complete this deal without any unnecessary dilution.

Assuming it pays a 30 per cent premium on Nedbank’s pre-bid price, it will get a 70 per cent stake for around $8.4bn, against internal capital generation in 2010 of around $14.9bn. That means the deal will hit tier 1 equity by around 80 basis points, leaving HSBC with a more-than-comfortable ratio of 9.7 per cent. With that in mind, management should be able to bring in the goods without tapping shareholders.