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When HSBC unveiled a $13.6bn deal to take full control of its local Hong Kong lender on Thursday, chief executive Georges Elhedery was clear: after a year spent in retreat from high-profile businesses such as investment banking, the bank was back on the front foot.

“This is an investment for growth . . . for the medium to long term in what is a leading local bank in Hong Kong,” Elhedery said shortly after the announcement of the offer for the 37 per cent of Hang Seng Bank owned by other investors.

The bid is Elhedery’s first big strategic move that involves spending money rather than cutting back since he took charge in September last year.

Elhedery’s first term in office has been marked by his restructuring of Europe’s largest bank, with a cost-cutting plan that involved pulling the bank out of retail markets such as France and Argentina, and scrapping the HSBC investment bank in Europe and the US.

Another element of his plan however was to simplify HSBC’s structure into one that emphasised its two core geographical markets of the UK and Hong Kong. HSBC had US$9.1bn in pre-tax profit in Hong Kong in 2024 — 28 per cent of the total for the group — against $6.6bn in the UK.

Buying out minority investors in the Hong Kong bank has been welcomed by analysts as a long-awaited, common-sense simplification of the business in HSBC’s core market.

HSBC first bought a controlling stake in Hang Seng Bank, a local retail bank with a strong brand, in 1965 as a banking crisis hit the then-British territory — a deal that turned it into a dominant local player and ranks among HSBC’s most strategically significant transactions.

“Hong Kong has long been HSBC Holdings’ most profitable home market. We view the proposed transaction as a strategic redeployment of the substantial excess capital it is generating,” S&P analysts said on Friday.

Using HSBC’s excess capital to wholly privatise Hang Seng should boost the group’s capital ratios by ending the so-called “minority-interest deduction” — the accounting adjustment to HSBC’s cash buffer that represents the fact that Hang Seng was not fully owned by the European bank.

“The ability to be able to scale investments across both brands across the international network will be enhanced through this alignment,” Elhedery said on Thursday. “And it is more value generative for our shareholders than a share buyback.”

Investors’ reaction has been less positive: HSBC’s shares closed the week more than 5 per cent lower, weighed down in part by the bank’s decision to hold off new buybacks until at least the middle of 2026.

And after months of rumblings about Hang Seng’s exposure to Hong Kong property, there are questions about whether HSBC is making a billion-dollar bet on one of its twin home markets — or bailing out a troubled subsidiary.

Hang Seng is heavily exposed to the Hong Kong economy. It claims “close to 4mn customers”, almost all in Hong Kong — a city of 8mn. Most of its business comes from retail banking and lending to small and medium-sized companies — but it is particularly exposed to smaller Hong Kong real estate developers that are now under pressure.

China’s property bubble burst in 2021, imperilling some of the world’s largest developers. Hong Kong’s property market has followed suit, hit by rising interest rates, weaker demand and a loss of confidence in the territory following the anti-National Security Law protests and strict Covid-era lockdowns.

Hang Seng’s profits have fallen this year as interest rates have come down and demand for loans has declined — and the bank has ratcheted up its expected credit losses to reflect higher risk particularly on loans to Hong Kong’s real estate developers.

Pre-tax profits at Hang Seng dropped 28 per cent in the first half of 2025 compared with a year earlier to HK$8.1bn, and its non-performing loan ratio was 6.7 per cent: higher than even during the Asian financial crisis of the late 1990s.

Hang Seng’s difficulties also showed up in HSBC’s group results, which include Hang Seng. By the end of June, 73 per cent of its Hong Kong commercial real estate loans were marked as either impaired or as having increased credit risk, the Financial Times reported in August.

Two days after that report, Hong Kong Monetary Authority chief executive Eddie Yue weighed in, insisting that the city’s financial system remained strong.

“A recent media report highlighted the risks associated with CRE loans, with a particular focus on the accounting of banks’ ‘expected credit losses’,” Yue wrote in a blog post. “Hong Kong’s banking system is well-capitalised and has sufficient provisions and good financial strength to withstand market volatilities.”

But HSBC has nonetheless installed a new chief executive at Hang Seng, announcing last month that group veteran Luanne Lim would take over.

Some analysts said that even if this deal was not a bailout of Hang Seng, taking full control of the bank would allow HSBC to better handle any fallout from the property crisis.

“[The crisis] is HSBC’s responsibility, they need to take responsibility for it”, said Michael Makdad, an analyst at Morningstar. “If it were a choice between spinning off Hang Seng and taking 100 per cent control, then that is what matches the strategy and they have capital to do it.”

Rivals in the industry praised the move by HSBC to consolidate its operations in Hong Kong and get a handle on its exposure to struggling property investments.

“This has been a long-term goal for HSBC and now it is more politically possible,” said one former financial executive.

“Now it’s an easier time to gain control. This gets you the deposit base and in terms of dealing with the property market, it allows you to manage . . . without minority friction.”