HSBC in talks for $6.8 Billion majority stake in South African Bank, Nedbank

British bank HSBC says it is in talks with financial group Old Mutual PLC about the possible purchase of a majority stake in Nedbank Group Ltd. of South Africa. The discussions center on the sale of a 70 percent stake in Nedbank is South Africa’s fourth-latest banking group in terms of total assets.  Nedbank traces its history back to the 1830s and has been majority owned by Old Mutual since 1986.

HSBC Holdings PLC, Europe’s largest bank by market capitalization, has proposed a deal to buy majority control of South African lender Nedbank Group Ltd. in a move that could help it expand its operations in African markets where Chinese banks and other investors are active.

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HSBC and London-based Old Mutual PLC, the majority owner of Nedbank with a 51.5% stake, in separate statements said they have entered exclusive negotiations on a transaction that could see HSBC make an offer to all Nedbank shareholders for a stake of up to 70%. The companies didn’t disclose a price, but at Friday’s close Nedbank had a market capitalization of $9.25 billion.

A person familiar with the situation told Dow Jones Newswires that a deal between HSBC, which is looking to Asia and other emerging markets for growth, and Nedbank would help HSBC take advantage of links between Africa and China. He said other Asian banks were interested in Nedbank, “but given this is an around $7 billion deal, there are only a handful of banks that can spend this much.”

If successful, the Nedbank acquisition would be HSBC’s biggest since the financial crisis and one of the biggest mergers-and-acquisition transactions in South Africa.

While the move fits into HSBC’s emerging-markets strategy, analysts said it is unlikely to generate quick returns. HSBC doesn’t have a large presence in Africa and will need time to build on its platform there. Acquiring a portion of Nedbank, which has many small business customers, also is a departure from HSBC’s strategy elsewhere, which has been to attract deposits and business from wealthy individuals.

This is a substantial opportunity for HSBC to expand both within the South African and African markets in due course, especially when Chinese bank ICBC acquired only 20 percent of Standard Bank in 2007. European and American banks don’t want to be left behind by their Asian counterparts.

If HSBC wins out, it should be able to use its global experience in retail banking to turn around Nedbank’s struggling South African retail division, which suffered a $15.7m loss in the first half of this year. But its eyes will soon stray north to the rest of Africa: Kenya, Tanzania, Angola and the Democratic Republic of Congo are all possible targets. The first big move, however, might be into Nigeria. Several of the country’s banks look like potential takeover targets after taking serious knocks during the global downturn.

A strong pan-African presence could prove lucrative for HSBC in the long term – but getting there will be tough.

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