HSBC starts exclusive talks with Nedbank

banking

HSBC is in exclusive talks with the insurer Old Mutual to buy a controlling stake in South Africa's Nedbank as part of plans to focus on fast-growing emerging markets and exploit ballooning trade between China and Africa.

Old Mutual owns 53 per cent of Nedbank and, if the discussions proceed successfully, HSBC is expected to tender for as much as 70 per cent of the bank.

Nedbank is one of South Africa's "big four" banks, with a market cap of more than $8bn (£5.2bn), 443 branches across the the continent, and 27,000 employees.

HSBC is not the only big player interested in the company. Earlier this month, Standard Chartered was also rumoured to be in talks with Old Mutual over Nedbank.

Old Mutual said yesterday that a deal with HSBC would be a major boost for the South African financial sector, while stressing that at least part of the proceeds would be reinvested in the country.

"The proposed transaction, if implemented, is likely to result in a material strengthening of South Africa's financial sector, foreign direct investment by HSBC in the banking sector and material incremental investment by Old Mutual in the long-term savings sector," the London-listed group said in a statement yesterday.

"Further benefits are expected to include an improvement in the long term capital and current account inflows to South Africa."

Nedbank was also talking up the potential of the deal yesterday. "HSBC represents an attractive international banking partner and shareholder of reference and has the potential to provide Nedbank with benefits which should enhance the group's ability to strengthen its position in the South African banking sector," it said in a stock exchange statement. "There is a substantial opportunity to expand both within the South African and African markets in due course."

A source familiar with HSBC's thinking said that while the deal is far from done, the exclusive talks are a sign of the bank's interest in the region. "HSBC has confidence in the long term economic and social development of Africa," the source said.

"It's further evidence that management is repositioning HSBC and exploring opportunities to invest in faster growing markets."

Buying Nedbank would give HSBC a vital bridgehead in the booming trade with emerging markets, particularly China, where HSBC is already strong. Just less than 30 per cent of South Africa's exports go to Asia and China is the country's most important trading partner, with exports rising from 1.2 per cent in 2000 to 9.4 per cent last year.

The deal would also give HSBC a toehold in Africa, where the population is forecast to rise higher than that of India and China by 2050.

Any agreement with Nedbank and Old Mutual will need to be approved by the South African Reserve Bank, along with a slew of other regulatory approvals including that of the Registrar of Banks and the Minister of Finance.