HSBC buys a $254m stake in Vietnamese insurance group

HSBC has made its second investment in the Asian insurance sector in less than a week with the purchase of a 10 per cent stake in Vietnam's leading insurer for $254m (£125m).

State-owned Bao Viet disclosed that it had chosen the world's fourth largest bank to be its sole "strategic investor" before an expected initial public offering in 2009.

Under the terms of the agreement, HSBC also has the rights to buy a further8 per cent stake after 18 months as well as "certain pre-emptive rights".

The move underlines HSBC's intention to pursue a two-pronged approach to investing in some emerging markets, reflecting its view that both the banking and insurance businesses are evolving rapidly as consumers grow wealthier. HSBC already has an investment in Techcombank, the Vietnamese lender, which it raised to 15 per cent this year.

The investment comes as HSBC's every move is under scrutiny from Eric Knight, the activist investor who has criticised the bank's performance and is urging it to launch a strategic review and shake up corporategovernance.

Mr Knight has indicated that he wants HSBC toconcentrate resources on expanding in Asia. Nevertheless, he criticised the investment, arguing that the minority stake would give the bank limited influence.

"It is another example of the failed strategy that HSBC has pursued over 15 years of building a portfolio of standalone businesses which cannot be integrated into a coherent whole," Mr Knight said.

HSBC executives believe the bank is under-represented in insurance and want to double the proportion of profits the bank derives from insurance operations to 20 per cent.

The bank signed an agreement on Monday to launch a life assurance business in India with two local banks.

Bao Viet, Vietnam's market leader in life and general insurance by premium income, reported revenues of $272m and profits of $27m last year. It has 526 branches, 5,000 staff and 40,000 sales agents and had total assets of $1bn at the end of 2006.

Bao Viet was advised by Credit Suisse. Joe Gallagher, chairman of M&A Asia Pacific at the advisers, said: "The deal marks the largest mergers and acquisitions transaction in the country's history."

Stephen Green, HSBC chairman, said: "This investment is in line with HSBC's stated strategy of targeting investment at high-growth markets."(Source: Reuters)