Shares in HSBC jumped on Monday after reports the global lender will try to raise its stake in China's fifth-largest lender, a move that would be further evidence of its shift to Asian markets.
Kirsty Wigglesworth
Jiang Chaoliang, Chairman of the Bank of Communications (BoCom), told reporters in Beijing on Monday both lenders had agreed HSBC would have the option to raise its stake to as much as 40 percent -- when regulations allow.
HSBC has a 19 percent stake in BoCom and has said it would raise that holding to just under 20 percent, the limit allowed by regulators. It has said it would like a bigger stake if it was allowed to.
Analysts said investors were reacting to reports that HSBC had already applied to go for a bigger stake, seeking an exemption to Chinese law that caps foreign ownership of a domestic bank at just under 20 percent.
One fund manager in Hong Kong said HSBC extended a rally after a recent stock upgrade from Goldman Sachs.
A spokesman for HSBC declined to comment.
Bocom's Jiang, when asked if HSBC and BoCom would try to secure an exemption to ownership rules, told reporters: "Between us, there is no problem. But there is a legal barrier."
HSBC's London shares were up 1.5 percent at 769.50 pence. Its Hong Kong shares closed up 2.9 percent. BoCom shares climbed as much as 2.7 percent -- the only major Chinese lender to have gained in Hong Kong in the afternoon.
The market also gathered steam in the afternoon as investors judged Hong Kong oversold, helping accelerate HSBC's run. Its stock looked cheap at around 9 times this year's earnings versus 14 times for its blue-chip peers, according to Reuters Estimates.
HSBC's strategy remains under scrutiny.
Europe's biggest bank has said it will focus investments in fast growing emerging markets, and analysts said further evidence that it is doing so and moving away from slower and mature economies would be welcome.
Knight Vinke Asset Management, an HSBC investor that has been urging strategic change, on Sunday renewed its call for the bank to sell or "ring-fence" its troubled HSBC Finance unit.
The activist hedge fund said the U.S. business will require more capital from its parent and keeping the business would be a bigger mistake than the "catastrophic" purchase of the unit five years ago.
HSBC has said walking away from the business would be "unreasonable" and "unrealistic." But it has said the reshaping of its U.S. arm is a "multi-year transition."
HSBC said at its 2007 results last week that its profits from China, including its stakes and joint ventures, topped $1 billion for the first time.
The bank had held a 19.9 percent stake in BoCom but the holding was diluted after a big share placing.
London-headquartered HSBC also has stakes in Ping An Insurance, Bank of Shanghai, and in asset management and insurance broking joint ventures. Hang Seng Bank, part of HSBC, also holds a stake in Industrial Bank.