It’s been a busy few days for HSBC Bank Malta plc (‘HSBC Malta’). On February 13, HSBC held an EGM that was called specifically and solely to ask its general body of shareholders to approve the opening of a data room that will allow potentially interested parties to access confidential information on HSBC Malta.

This is part of the process that commenced in September 2024 when HSBC Europe, the 70% shareholder in HSBC Malta, announced that it is conducting a strategic review on various investments it holds. HSBC has been exiting various countries as it attempts to streamline its operations and concentrate its resources in Asia, where investment returns are superior to those in Europe.

Malta is not being spared and, although the board of HSBC Malta went to great length to say that nothing has yet been decided by HSBC Europe and that the process is at an early stage, the writing is on the wall. Unfortunately, no clear timeline has been disclosed. It is in everyone’s interest that clarity is reached as soon as possible. Uncertainty suits no one.

Meanwhile, emotions were running high at the EGM. There was a sense that HSBC Europe was going to sell HSBC Malta cheaply and minority shareholders were to be forced to accept the same deal. This is potentially wrong on both counts. While in other jurisdictions HSBC may have exited businesses on the ‘cheap’ for strategic reasons, there are some important differences to the local situation.

At the outset, HSBC Europe is not selling a business which it owns 100%. It is selling a majority stake in an independently publicly quoted entity. There are rules which come with being listed and I suspect HSBC is unlikely to try and run roughshod over these rules.

Secondly, HSBC Malta is a systemically important bank. This means that it plays a critical role in the local financial system and, hence, any change in ownership will be closely monitored and needs to be approved by regulators in order to ensure the continued stability of the local financial system.

Any potential buyer would need to show that it has the financial capital, infrastructure and reputation, among other characteristics, to ensure it does not create systemic shocks or risks to the domestic financial system.

Any financial transaction agreed between HSBC Europe and the buyer is likely therefore to be closely scrutinised.

The way the buyer treats or intends to treat minority shareholders will also be analysed.

Given that HSBC Europe intends to sell a majority stake in the HSBC Malta, the listing rules require that a mandatory bid, by the incoming buyer, is made to minority shareholders. The bid price must be at least as good as that offered to HSBC Europe and must be a fair and equitable price. Now one can argue what is fair and equitable and the listing rules point to the way this can be determined but, importantly, for the reasons I mentioned above, any bidder will be ill advised to try and force a deal down the minority shareholders’ throats. Nor should it want to.

Those same shareholders are likely to be important customers and employees of the same bank. Malta is a small and incestuous place. And while a bid is mandatory on the offeror, it is not mandatory on the minority shareholders to accept. These shareholders will be free to accept or reject this bid.

The only circumstance that this will change is a scenario where the bidder manages to buy in excess of 90% of HSBC Malta at the offer price.

At this stage, it is game over for the minority investors. From a timing perspective we are indeed a long way away from this. The data room is in the process of being opened. Once this is closed, negotiations start and, on conclusion, the regulatory approval process commences. This can be a complex exercise which is likely to run into a good number of months.

Meanwhile, back at HSBC Malta, the 2024 results have just been released. Reported profits showed a 15% jump to €154 million, aided by a number of one-offs. The dividend was also increased significantly to €0.22 gross of tax (final dividend of €0.12 gross) which, at a share price of €1.54, gives an annual gross dividend yield of 14.3%. At 22.4%, capital ratios continue to remain extremely robust and significantly above the 14.5% minimum threshold, possibly excessively so but the bank has always managed its capital base extremely prudently.

After all, it is why HSBC Malta has such a strong financial reputation. In the context of a potential buyer, it will be interesting to see the extent to which this extra buffer will remain in place or, possibly, be reflected in any final exit price by HSBC Europe.

Meanwhile, management were at pains to emphasise it is business as usual at the bank and, while this may be true, it is hard to not recognise that the business of the strategic review is never far from the agenda.

And, in case the subject comes up, HSBC Europe will be footing any expense that HSBC Malta incurs as part of the strategic review process.

David Curmi is chief officer – business development & client relationships at Curmi & Partners Ltd.

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.