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October 24, 2013

JS Bank-HSBC Pakistan deal falls through

October 24, 2013

KARACHI: The agreement between JS Bank Limited and HSBC Bank Middle East Limited (HBME) for the sale of HSBC Pakistan to JS Bank has been terminated, said JS Bank company secretary Mohammad Yousuf Amanullah on Wednesday.
Confirming the development, HBME, which is a wholly-owned subsidiary of HSBC Holding Plc, said on Wednesday it has terminated the agreement since JS Bank has not managed to secure regulatory approval for the purchase. “At this point, we continue to provide normal banking services to our customers, as we have done since the announcement of the transaction in September 2012,” Tim Doyne, HBME’s regional head of communications told The News via email.
The bank is also exploring other options. “As we have stated in the announcement, we are evaluating alternative options for the business and this includes the potential for a sale,” said Doyne.
Meanwhile, Amanullah said that the planned acquisition of HSBC Pakistan operations has not been consummated because some of the preconditions laid down in the sale purchase agreement could not be fulfilled within the time period agreed between the parties.
The sale purchase agreement between JS Bank and HBME was signed in September 2012; however, the value of the transaction was never disclosed. (Amanullah now admits the deal was announced without actually having agreed upon a final price.)
As of June 30, 2012, HSBC Pakistan had 10 branches and gross assets of Rs60.06 billion (approximately $635 million). And the sale was subject to the approval of the State Bank of Pakistan (SBP) and compliance with all other applicable laws, rules and regulations.
According to banking sector analysts, JSBL’s interest in HSBC Pakistan stemmed from the latter’s strong footprint in consumer banking as well as the potential enhancement of JS Bank’s tier-1 capital as a result of the acquisition.
While the termination of the deal shall deprive JS Bank of some benefits, a few experts are of the

opinion that the falling through actually works in JS Bank’s favour. “The prime consideration for the acquiring entity is the deposit base of the target bank but soon after HSBC announced it was selling to JS Bank, at least Rs10 billion worth of deposits went to another bank,” says a senior banker. “That amount was equal to approximately 22 percent of HSBC Pakistan’s total deposit base and so the deal no longer looked as sweet for JS Bank.”
HSBC Holdings Plc, one of the largest UK-based banking and financial services organisations in the world, had announced last year to close its banking operations in Pakistan as a part of its global strategic overhaul. In terms of assets, HSBC was the second largest foreign bank in Pakistan. Globally, it has a presence in 85 countries and territories in six geographical regions: Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa (MENA), North America and Latin America with the network of around 7,200 offices.
With the JS Bank deal off the table, HSBC is expected to shop around for new buyers in Pakistan. At the time HSBC had announced its divestment plans, MCB Bank, UBL, KASB Finance, Silkbank, Habib Bank Limited and Allied Bank had signaled their interest and sought the central bank’s nod for initiating due diligence proceedings. Now that HSBC has seen an erosion of its deposit base, banking sector analysts expect several prospective local and foreign buyers to be on the lookout for a cheaper deal.

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