Africa bulls will say it was shortsighted of HSBC to cancel its $7.3 billion bid for South Africa’s Nedbank last month. Others will say the affair reflects badly on HSBC’s management more generally: if it wasn’t interested, it shouldn’t have bid.
Although HSBC has not been prepared to give a detailed explanation, a spokesperson hints that due diligence might have revealed a less compelling business case than expected. Indeed, despite efforts to improve fee income, Nedbank’s earnings are too reliant on asset growth. Its retail franchise is in disarray, bulking up the cost base. This cannot be fixed quickly, and other South African banks continue to enjoy higher returns.
But such problems could have been discovered before HSBC entered exclusive talks with its target. The main development since the summer, when the bid was announced, has been the departure of HSBC’s chairman and chief executive, although HSBC denies that this has anything to do with the Nedbank decision.
One advantage of buying a South African bank is the launch pad it gives to the rest of the continent. South Africa is Africa’s biggest economy, and home to the most developed banks and capital markets.