DUBAI (Reuters) – HSBC Holdings shares are undervalued due to unjustified concern over the risk to Europe’s biggest bank from problems with its U.S. mortgage lending, major shareholder Dubai International Capital said on Monday.
Sameer al-Ansari, chief executive of Dubai International Capital, which manages more than $7 billion of funds belonging to Dubai’s ruling family, said HSBC shares had “not gone anywhere” since DIC bought a stake in March for its Global Strategic Equities Fund to become one of the bank’s leading shareholders.
Ansari said he had bought into HSBC because its shares were attractively priced after falling because of the bank’s exposure to the troubled U.S. subprime mortgage market.
“The share price got knocked because of sub-prime issues, everybody ignored all the good things about HSBC and focused on that, so we felt there was an opportunity to get into it,” he said, adding that now the shares were “even more undervalued.”
He said the problems in the United States would not have a major negative impact on HSBC’s overall performance.
“We feel that it is a small part of HSBC’s business. They have already taken huge provisions on that loan book and if things get even worse, it will still have a minute impact on HSBC’s numbers,” he said.
Dubai International Capital’s Global Strategic Equities Fund, set up with participation from the Qatar government and Dubai-based private equity firm Zabeel Investments, aims to take stakes of around $1 billion each in some of the world’s largest listed companies.
It has not announced the size of its stake in HSBC, saying only that it is substantial. Ansari said the fund’s strategy was to buy into companies that were undervalued because they were facing problems and that had a management team committed to solving these problems.
Asked whether he wanted to see HSBC divesting some assets, Ansari said: “If management feels that the best way to create value is through some divestitures, it’s fine by us.”
But he said Dubai International Capital did not seek to dictate strategy to the management of companies in which the fund took stakes.
“The key part of making these investment decisions is to see whether management and us see eye to eye. It’s not to go in there and then force them to make changes,” he said.
“If when we met with the HSBC management we felt that our view of what needs to be done at HSBC is completely different from where they want to take it, we wouldn’t make the investment.
“If I didn’t think that the senior team were passionate about the changes that needed to be made, we wouldn’t make the investment because although it is undervalued, if nothing is going to change, it will stay undervalued.”