In agreeing to buy Republic New York Corp., HSBC Holdings PLC is taking a big step in a plan to diversify geographical risk.
The $10.3 billion deal, announced Monday, would markedly boost HSBC's business in industrialized nations, especially in the United States. Some 16% of HSBC's assets would be in the United States, up from 5.9% at the end of 1994.
John R.H. Bond said that acquiring Republic, which has assets of $50.4 billion, would help HSBC balance its fast-growing operations in Asia and Latin America and its activities in Europe and North America.
"We aim to maintain a balance of earnings between the OECD countries and the emerging markets," he said.
Analysts predicted that HSBC will make more cross-border acquisitions as part of an effort to build a global powerhouse in commercial and retail banking. Unlike Germany's Deutsche Bank, which is paying $10.1 billion to buy the investment banking-oriented Bankers Trust Corp., HSBC has a limited presence in investment banking.
The deal would make HSBC the world's sixth-largest bank, with assets of $533 billion.
Though the acquisition is expected to save $300 million a year within two years, the markets were unimpressed. HSBC's stock closed Monday at $34.64 in London, down almost 3.2% from Friday's close. Analysts said the response reflected concerns about restructuring charges of about $450 million over 1999 and 2000 and the issuance of $3 billion in common stock.
Some analysts were upbeat, however.
"It's a good opportunity to add shareholder value by taking a large chunk of costs out of Republic," said Nick Collier, a banking analyst with Morgan Stanley Dean Witter in London.
In addition to sharply increasing its presence in the United States, HSBC's acquisition of Republic will give it a formidable presence in European private banking, doubling its global private banking business.
Included in the acquisition package is Republic's 49% share of Luxembourg-based Safra Republic Holdings SA, an elite bank for the world's wealthiest people.
"The private banking business falls right into line with our wealth management strategy," said Malcolm Burnett, president and CEO of HSBC Bank USA.
With the acquisition, HSBC would gain 30,000 private banking clients and $56.5 billion of assets under management in Europe, Latin America and Asia.
It also will pick up two million retail customers and 83 branches in the greater New York area-and become the third-biggest deposit-taker in the state.
Meanwhile, HSBC would gain eight branches in Florida and 36 offices and subsidiaries in Latin America, the Caribbean, Europe, and Asia.
"This fits neatly with HSBC's U.S. banking operations in the greater New York area and with its desire to increase its worldwide private banking operations," said Ian McEwen, a banking analyst at Lehman Brothers in London.
HSBC has been expanding rapidly since the late 1980s, acquiring banks in the United States, the United Kingdom, Canada, and Brazil, Argentina, Mexico, and South Korea.
The boards of both Republic and Safra Republic have approved the transaction, according to the bank's press release, which also said Edmond J. Safra, who owns about 29% of Republic, has "irrevocably" agreed to vote his 29% shareholding in Republic New York and his 21% share in Safra Republic. Banking sources said Mr. Safra decided to sell the bank more than a year ago after becoming ill with Parkinson's disease.
Under the agreement, HSBC will pay approximately $7.6 billion for Republic, or 2.5 times book value, and $2.6 billion for shares in Safra Republic Holdings not owned by Republic. HSBC said it will issue around $3 billion in ordinary shares to institutional investors to finance the acquisition as well as an unspecified amount of preferred shares and subordinated debt.
James Cleave, who retired two years ago as chairman of HSBC's predecessor Marine Midland, will return to head up the integration effort, a Republic spokeswoman said.
Republic's current management, chairman and chief executive officer Dov C. Schlein and president Stephen J. Saali, have agreed to remain at the new company, the spokeswoman said. Mr. Schlien and Mr. Saali took the helm just three weeks ago, upon the retirement of Walter H. Weiner.