HSBC Agrees to Buy Remaining Stake in China Life Insurance JV

As China opens up its markets wider for foreign firms by removing foreign ownership restrictions on foreign-funded life insurance companies in the country, HSBC Holdings plc HSBC has entered a deal to buy the remaining 50% stake in its China life insurance joint venture (“JV”) — HSBC Life Insurance Company Limited — from The National Trust Limited.

HSBC Life Insurance Company Limited was formed in 2009 as a 50:50 JV between HSBC and National Trust Limited. The JV offers insurance solutions that cover annuity, whole life, critical illness and unit-linked insurance products.

The move aligns with HSBC’s CEO Noel Quinn’s plan to boost the company’s performance by shifting investments and capital to Asia, and restructuring the business.

Quinn stated, “Despite the current difficult environment engendered by the Covid-19 pandemic, we continue to take steps to implement our growth strategy. This transaction supports our ambition to accelerate growth within our Asian franchise, particularly in the dynamic and fast-growing Greater Bay Area, where we fully intend to expand in all lines of businesses. It also allows us to further extend our capabilities in wealth, another area of strategic focus for the Group.”

HSBC’s Asia Pacific chief executive, Peter Wong, said, “As the leading international bank in China, HSBC is privileged to participate in the opening up of the insurance sector, a positive development which underlines China’s commitment to financial reform. This transaction allows us to increase our investment and deepen our presence in China, an important country within our well-regarded Asian franchise and a strategic market supporting our customers’ activity across our global footprint.”

Notably, the deal will be structured as a transfer of equity interest and is subject to regulatory approvals, including from the China Banking and Insurance Regulatory Commission.

China has been continuously making efforts to open its financial markets since 2018. In fact, despite the ongoing crisis disrupting investor sentiments largely, China opened its asset-management markets wider for foreign firms, starting Apr 1, 2020.

Among firms wanting to take advantage of the situation is JPMorgan JPM, which agreed to own 100% of its China mutual fund JV — China International Fund Management Co.

Recently, Credit Suisse CS received regulatory approval to take a majority stake in its China investment banking JV.

Goldman Sachs GS also received a nod from the China Securities Regulatory Commission to increase stake in its mainland securities JV to 51%.

With foreign firms being allowed to conduct business in China without any restrictions, it will help boost their revenues and market share. Also, as the current global operating backdrop looks challenging, global diversification is likely to support their financials.

HSBC’s continued efforts to strengthen digital capabilities globally and improve operating efficiency through further restructuring efforts will go a long way in supporting profitability. However, while the company’s initiatives to improve market share in China will likely support its financials over the long term, it might lead to an increase in expenses. Elevated expenses will, in turn, hurt the bottom line to an extent.

Shares of HSBC have lost 36.3% so far this year compared with the 40.5% decline recorded by the industry.

Currently, HSBC carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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