Reuters: Hot Stocks: UPDATE 1-HK family-run banks, suitors now seen more likely to wed

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UPDATE 1-HK family-run banks, suitors now seen more likely to wed Sep 17th 2013, 07:25 Tue Sep 17, 2013 3:25am EDT * Wing Hang shareholders receive preliminary offers * Wing Hang shares surge as much as 49 pct * Chong Hing received offers last month * Wing Hang could be worth as much as $6.3 bln -JPMorgan (Recasts with motivations for the banks and suitors) By Denny Thomas HONG KONG, Sept 17 (Reuters) - Hong Kong's family-run banks, under pressure from new rules requiring higher levels of capital, are finding M&A stars re-aligning in their favour, with Chong Hing Bank Ltd and now Wing Hang Bank Ltd getting takeover offers from suitors. China's economic might and healthy growth in the offshore yuan loan market has made the mid-sized banks increasingly attractive as gateways for foreigners to the mainland and for mainland Chinese banks to branch out beyond their home turf. At the same time, new capital rules and competition from bigger rivals like HSBC Plc, Standard Chartered Bank Plc have given controlling shareholders more incentive not to hold out for extra-lofty premiums other family-run banks commanded before the global financial crisis. Wing Hang said on Monday its main shareholders, which include the Fung family led by Chairman Patrick Fung, and BNY International Financing Corp who jointly own 45 percent of the bank, had been received preliminary bids. If a deal went ahead, the buyer would be required to make a general offer to the rest of the shareholders under Hong Kong takeover rules. The news sent the bank's share prices surging as much as 49 percent on Tuesday to HK$124.70, valuing the company at $4.9 billion. In afternoon trade, the shares were up 40 percent. "Today may be remembered as the beginning of the end for Hong Kong bank consolidation," J.P. Morgan said in a report after the Wing Hang announcement. On one hand, rising competition has put more pressure on mid-cap Hong Kong lenders, with their return on equity slumping to 9 percent from about 20 percent in 2001, Bank of America Merrill Lynch estimates. The new Basel III rules would also make it challenging for family-run banks to maintain higher core capital ratios, as the main shareholders would be required to replenish capital to maintain their stake in the bank if there was any fund raising. But with only four family-run banks left in Hong Kong, including industry leader Bank of East Asia Ltd and the smallest Dah Sing Financial Holdings, interested buyers may feel they need to scramble to get a coveted gateway. The offers for the two banks also come at a time when cross border lending in Asia, especially that routed through Hong Kong, has risen 11 percent in the January to July period, driven by growth in trade finance, J.P. Morgan said in a report last week. Wing Hang shares could command a 90 percent premium to Monday's close, which translates any potential deal value at about $6.3 billion and would make its Hong Kong's biggest M&A deal since 2000, J.P. Morgan said. Grace Wu, banking analyst at Daiwa Capital Markets in Hong Kong, said M&A in Hong Kong's banking sector historically has had price to book ratio multiples of between 2.5 and 3.3 but the since 2000, the average has been 1.9. But Wang Hing, with its track record in delivering strong and consistent return on equity would mean that a potential takeover would be priced at the upper end of the historical range, she said. The offers for Wing Hang come just one month after Chong Hing received takeover approaches, including one from a company controlled by a Chinese city government, according to person familiar with the matter. A successful deal for either bank would mark the first M&A in Hong Kong's banking sector since 2008. Wing Hang did not identify the potential buyers but Japanese mega banks, Australia and New Zealand Banking Group Ltd as well as Singapore and Malaysian banks are keen to expand further in Asia. Shares in the other family run banks also rose on Tuesday with Dah Sing jumping as much as 12 percent. Bank of East Asia climbed 5 percent. (Additional reporting by Clement Tan and Umesh Desai; Editing by Edwina Gibbs) Link this Share this Digg this Email Reprints

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