HSBC pulls out of Argentina at a $1 billion loss as Asia pivot continues

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HSBC Holdings Plc agreed to sell its business in Argentina, and will book a $1 billion charge in the first quarter from the disposal as the lender hones its focus on faster growing Asian markets.

The bank will sell the operations to Grupo Financiero Galicia for $550 million, subject to some price adjustments, according to a statement on Tuesday. The deal includes all of HSBC Argentina’s business, which ranges from banking to asset management and insurance, as well as $100 million of subordinated debt.

The move “enables us to focus our resources on higher value opportunities across our international network,” Chief Executive Officer Noel Quinn said in the statement. The Argentine unit has “limited connectivity” to the rest of the business and creates “substantial earnings volatility for the group when its results are translated into US dollars,” he said.

HSBC Argentina, which has more than 100 branches, 3,100 employees, and about one million customers, made a profit before tax of $239 million in 2023. The bank said in February that Argentine President Javier Milei’s move to devalue the peso by more than 50% shrunk the bank’s profit before taxes by $548 million in the fourth quarter. 

HSBC said it will recognize about $4.9 billion of historical foreign currency translation reserve losses when the deal closes. That reflects cumulative losses over the years from the translation of the unit’s Argentinian peso-denominated book value into US dollars, which are already reflected in the bank’s CET1 ratio, a key measure of capital strength. 

The impact of the transaction will be excluded from HSBC’s dividend payout calculation, which remains at 50% for 2024. It is expected to complete within the next 12 months.

Asia Focus

HSBC, based in London, has been disposing of operations across the world as it has pivoted to focus more on Asia. It has exited some business in North America and France as it builds out in India, Singapore and China. It’s several years into a strategy of pivoting its business increasingly toward the faster-growing markets of Asia where the bank makes most of its money

Royal Bank of Canada completed the purchase of HSBC’s Canadian unit in March. HSBC has said it will recognize an estimated gain on sale of $4.9 billion in the first quarter and declare a special dividend of about $4 billion as a result.

The lender is also exploring the sale of various businesses in Germany including its wealth-management, custody and fund administration units, people familiar with the matter said earlier this month. 

Disposals of businesses in markets like those have been balanced by acquisitions of insurance and wealth management assets in Asia, a region with swelling ranks of the wealthy.

What Bloomberg Intelligence Says

HSBC’s expected pretax loss of $1 billion on the sale of its Argentinian unit is equivalent to about 3% of 2024 consensus pretax profit and should have limited impact on its CET1, dividend capacity and planned share buybacks. Hyperinflation has been a drag on Argentinian operations, as seen in a $500 million pretax profit hit in 4Q, and the sale will also be in line with the bank’s plan to strengthen its focus on Asia.

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