HSBC shares took a hit on Thursday morning as the bank unveiled plans to halt its buyback programme in order to acquire minority shareholders in Hong Kong's Hang Seng Bank.
The FTSE 100 banking titan has proposed to pay HK$155 per share for the 36 per cent stake not currently owned by the bank, valuing the stake at HK$106.1bn (£10.7bn), as reported by .
This offer signifies a 30.3 per cent premium over the last closing price of HK$119.00.
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As markets opened, HSBC's shares in London plummeted by six per cent to lows of 997.40.
Despite the acquisition, HSBC plans for the nearly century-old Hang Seng Bank to maintain its separate banking license, brand, governance, and branch network in Hong Kong.
Once the scheme is implemented, Hang Seng would become a wholly-owned subsidiary of HSBC Holdings, and its shares will be withdrawn from the Hong Kong Stock Exchange.
However, the group anticipates a capital impact of approximately 125 basis points on its CET1 ratio – a crucial measure of a bank's financial health, – which it intends to replenish through organic capital generation.
HSBC weighs on FTSE 100
The bank's shares dropped over four per cent in Hong Kong following the announcement.
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Kathleen Brooks, research director at XTB, commented: "This is a risky move, and the HSBC share price could take a knock during the London session later this morning.
"This deal weighed on the Hang Seng index, which is under-performing its Asian peers on Thursday."
The FTSE 100 experienced a 0.36 per cent dip in early trading, further weighed down by Lloyds Banking Group's announcement that it was "likely to be required" to boost its motor finance provision.
HSBC, being the index's second most valuable company with a market capitalisation close to £180bn, means even the slightest shifts from the banking behemoth will have significant effects on the index's standing.
The proposal is non-negotiable and hinges on the necessary approval of at least 75 per cent of the shareholders and the endorsement of the scheme by the High Court.