HSBC buys Panama bank for $1.8 bln
Monday, July 24, 2006, 10:45
HSBC will pay $52.63 a share for Banistmo, 25% more than on 20 July's closing price, the London-based bank said in a statement on Friday. HSBC bank revenue growth is slowing in HSBC's core markets HSBC has boosted its Latin American presence with the takeover of Panama's Grupo Banistmo. The deal gives the bank - the world's third-biggest - 220 branches in Panama, Costa Rica, El Salvador, Honduras, Colombia, Nicaragua and the Bahamas. HSBC is looking to expand in Latin America, an emerging market with higher growth potential than its core regions of Europe, the US and Hong Kong. Banistmo, Central America's biggest bank, posted profits of $115 million in 2005. "With North and South America already generating the lion's share of profits (about 36%) this acquisition continues to reduce the group's dependence on its former home territory of Hong Kong, while raising exposure to the growing emerging market regions," said Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers.
The purchase will give HSBC, Europe's biggest lender by market value, 220 branches in Panama, Costa Rica, Honduras, Colombia, El Salvador and Nicaragua. The acquisition is the biggest purchase in Latin America for HSBC, which has developed from a regional lender in Asia to the world's No. 3 bank through more than $60 billion of deals in the past decade. HSBC's Latin American revenue is growing at twice the pace of the bank's European and North American operations. „It's nice to see them expanding again into faster growing parts of the world,” said Richard Peirson, who helps manage about $8.2 billion, including shares of HSBC, at Axa Framlington Investment in London. „They understand the region and have been very successful in Brazil and Mexico.” Revenue at HSBC's Latin American units, which include also operations in Argentina, Chile and Uruguay, grew at an average 50% pace in the past two years. Latin America contributed 3.1%, or $647 million, of the bank's 2005 profit before tax, up from 2.3% a year earlier. Shares of HSBC, whose 109 billion pound ($202 billion) market value trails only Citigroup Inc. and Bank of America Corp., fell 0.9% to 947 pence in London. Banistmo shares were unchanged on Friday after rising 4.1% to 33.2 euros on 20 July, the biggest gain since they began trading on Spain's Latibex Exchange June 15. HSBC is betting on future growth tied to the Central America Free Trade Agreement with the U.S., HSBC Chairman Stephen Green, 57, said in the statement. The agreement, which Green said has „encouraging prospects,” encompasses the 40 million people of Nicaragua, Honduras, Guatemala, Costa Rica and the Dominican Republic and is in process of being ratified by member countries. The purchase of Banistmo will be HSBC's third in Panama and triple its branches in the country to 61. It will give HSBC 106 outlets in Costa Rica, Honduras, Colombia and Nicaragua and 72 in El Salvador, where Banistmo owns 56% of Inversiones Financieras Bancosal SA, the holding company for Banco Salvadoreno. „There are significant numbers of people in that part of the world without bank accounts so there is a good opportunity now that they have the infrastructure,” said Ed Collins, a London-based fund manager at New Star Asset Management Ltd, who helps manage 200 million pounds, including shares of HSBC.
Over the last two years, HSBC has seen revenues from its Latin American operations - which include Argentina, Brazil and Chile - grow at an average of 50%. Under the cash deal, agreed by 65% of Banistmo's shareholders, HSBC is paying $52.63 per share: a 25% premium on Banistmo's closing price on Thursday. HSBC is paying about 2.2 times book value for Banistmo, according to Bloomberg calculations based on figures published by the Panama lender in June. It paid 2.7 times book when it bought Lloyds TSB Group Plc's Brazilian units for $815 million in 2003. Michael Geoghegan, who became HSBC chief executive officer in May, has three decades of experience in emerging markets and ran the bank's South American unit from 1997 through 2003. Geoghegan, 52, managed the deal to buy Lloyds's Brazilian units. Panama's $16 billion economy, with a population of 3.2 million, will post growth in excess of 6% in 2006 and 2007, Credit Suisse Group said in a report this month. Panama's first-quarter gross domestic product surged 7.9%, the most in 18 months, fueled by port works in anticipation of the expansion of the Panama Canal, a 51-mile (82-kilometre) shipping route that bridges the Caribbean Sea with the Pacific Ocean. Banistmo, which also owns the country's largest insurer, Compania Nacional de Seguros, earned $125 million last year and had total assets of $6.97 billion.
Buying Banistmo further reduces HSBC's „dependence on its former home territory of Hong Kong, while raising exposure to the growing emerging market regions.” said Keith Bowman, an analyst at London-based broker Hargreaves Lansdown. „HSBC's strength lies in its geographical diversification.” HSBC makes about 34% of its pretax profit in Asia, 30% in Europe, including the U.K., and 33% from North America, according to the bank's full year results published in March. The remainder of its earnings comes from South America. Asia, the bank's original market, is now its slowest growing division in terms of profit, weighed down by margin pressure and rising bad debts. Pretax profit in the region rose 6.2% in 2005. That compares with profit growth of 10% in Europe, 13% in the U.S. and 47% in South America.
HSBC has spent at least $4.5 billion buying 15 financial services companies in Latin America since 1998, according to Bloomberg data. It bought the Panama operations of Chase Manhattan Bank in 2000 and Financomer, which does personal lending, in 2005. In March, HSBC bought a stake of almost 20% of Mexico's Financiera Independencia SA for 700 million pesos ($65 million). Banistmo will be led by a senior management team headed by Sandy Flockhart, CEO of Financiero HSBC in Mexico, HSBC said. Shareholders with 65% of Banistmo's issued capital have agreed to sell their stock, HSBC said. The company expects to complete the transaction by the fourth quarter. „Banistmo will bring us significant market share and growth opportunities in all markets,” Green said in the statement. HSBC and Banistmo didn't use external advisers on the transaction, said Karen Ng, a London-based spokeswoman at HSBC. (Bloomberg, BBC News)