HSBC Holdings plc ( HSBC Quick Quote HSBC - Free Report) has announced a strategic plan that includes the divestiture of 90 of its branches, as part of the bank’s effort to exit the U.S. retail banking business. Further, the company intends to retain 20-25 branches, which will be restructured into international wealth centres. Besides, the bank will close the remaining 35-40 branches.
As part of the divestiture plan, HSBC inked two separate transactions with
Citizens Financial Group, Inc. ( CFG Quick Quote CFG - Free Report) and Cathay General Bancorp ( CATY Quick Quote CATY - Free Report) . The financial terms of both deals, expected to close in the first quarter of 2022, have not been revealed yet. Further, both are still subject to regulatory approvals.
Noel Quinn, Group CEO of HSBC, said, "We are pleased to announce the sale of the domestic mass market of our US retail banking business. They are good businesses, but we lacked the scale to compete. Our continued presence in the US is key to our international network and an important contributor to our growth plans. This next chapter of HSBC’s presence in the US will see the team focus on our competitive strengths, connecting our global wholesale and wealth management clients to other markets around the world."
Deal Details & Benefits
HSBC projects pre-tax costs of $0.1 billion to be incurred, with no anticipation of generating substantial gain or loss. In addition, risk weighted assets (on a PRA basis) related to the announced deals were $1.8 billion as of Mar 31, 2021. Also, the company doesn’t expect any material impact of these deals on its Common Equity Tier 1 ratio.
As a result of this divesture, Citizens Financial will acquire 80 East Coast branches, and add roughly 800 thousand new customers. Additionally, the company, through Citizens Bank, will assume $9.2 billion and $2.2 billion of deposits and loans, respectively as of Mar 31, 2021. The transaction will likely be instantly accretive to the bank’s earnings and lead to an internal rate of return of nearly 20%.
Meanwhile, Cathay Bank, the subsidiary bank of Cathay General Bancorp, will take over 10 West Coast branches and have about 50K customer relationships. Also, it will get hold of $1 billion in deposits and $0.8 billion of outstanding loans as of Mar 31, 2021. The transaction is projected to be 2% accretive to Cathay General Bancorp's GAAP earnings, on a run-rate basis (excluding the one-time transaction costs and restructuring expenses) in 2022.
Over the past six months, shares of HSBC have gained 21.8%, underperforming the
industry’s 25% rally.
Currently, HSBC carries a Zacks Rank #3 (Hold). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Our Take
HSBC’s transformation plan is aimed at reshaping its underperforming businesses, simplifying complex organization and reducing costs. It will further improve the operating efficiency. Hence, exiting the U.S. retail banking business is a step in the same direction.
Similar Action by Other Bank
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Societe Generale ( SCGLY Quick Quote SCGLY - Free Report) finally announced the divestiture of Lyxor Asset Management, to Amundi for $979 million in April. As part of the transaction, the sale will include Lyxor’s ETFs and other active and alternative management activities for institutional clients in the country and abroad. Bitcoin, Like the Internet Itself, Could Change Everything
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