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HSBC Agrees on Revised Terms to Sell French Unit to Cerberus
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HSBC Holdings (HSBC - Free Report) has agreed upon revised terms to sell its unprofitable French retail business to Cerberus Capital Management-backed My Money Group. In June 2021, HSBC announced the sale of the French business after conducting a review of the unit and finding it to be unprofitable.
However, in April 2023, HSBC said that the deal had become less certain because the unexpected rise in interest rates in France had “significantly increased” the capital requirements for the buyers at closing.
Nevertheless, HSBC has tweaked the terms of the deal, which is now expected to close in January 2024.
Per the revised agreement, HSBC will retain a €7 billion ($7.6 billion) portfolio of home loans it had originally expected to sell to My Money Bank, while Cerberus will inject €225 million of additional capital into the business.
At the end of 2022, the French business had a total loan book of €23.4 billion.
The revised deal is expected to lead to a new pretax loss of $2.7 billion, with as much as $2.2 billion recognized in the first half of this year. When the deal was first announced in 2021, it was expected that the sale would result in losses of about $2.3 billion, plus $700 million of goodwill charges.
HSBC said in a statement, “The changes do not alter the underlying rationale for the transaction, which will allow HSBC Continental Europe to focus on its international wholesale business model. There is no immediate change to the accounting treatment of the French retail business — there will be an information and consultation process with respective works councils and the transaction remains subject to regulatory approvals.”
Conclusion
The sale of the French unit was announced as part of HSBC’s transformation plan, which is aimed at reshaping underperforming businesses, simplifying complex organization and reducing costs.
As part of the transformation, announced in February 2020, the bank plans to scale back operations in Europe and North America and focus more on the profitable Asia region, including Hong Kong and China.
In sync with this, in 2022, HSBC acquired 100% of the issued share capital of AXA Insurance in Singapore and L&T Investment Management Limited (LTIM). Also, the company raised its ownership stake in its China securities joint venture, HSBC Qianhai Securities Limited, to 90% from 51%.
Moreover, the company intends to position itself as a top bank for high-net-worth and ultra-high-net-worth clients in Asia and plans to re-launch its private banking business in India soon. These initiatives will help the company strengthen its position in the region, which constitutes more than half of its operations.
Since the start of the transformation plan in 2020, HSBC has realized gross savings of $5.6 billion. It expects to achieve an additional $1 billion of gross cost savings this year due to the actions undertaken in 2022.
Further, as part of this initiative, HSBC entered into an agreement to sell its Canada banking business to the Royal Bank of Canada in November 2022 (now expected to close in the first quarter of 2024). Also, the company has exited from the U.S. retail banking space and is soon expected to exit from Greece and Russia.
Over the past six months, shares of HSBC have gained 29.3% compared with 12.3% growth recorded by the industry.
As part of its plans to exit retail banking in Italy, Barclays PLC (BCS - Free Report) has been searching for bidders for its Italy mortgage loans. BCS is seeking to sell €5 billion ($5.3 billion) of its mortgage loans in the country.
According to the people with knowledge of the matter, Barclays has started the divestiture process for a portfolio of mainly performing loans to individuals, while the package also includes non-performing mortgages and high-risk loans in Swiss francs.
Barclays’ strategy to exit the retail business follows its plan to dispose of non-core consumer operations in Europe and shift focus to the most profitable businesses in the U.K. and the United States.
Citigroup Inc. (C - Free Report) announced the completion of the sale of its India consumer business to Axis Bank Limited. The sale was announced in March 2022. The sale includes retail banking, credit cards, wealth management and consumer loans, as well as the transfer of around 3,200 Citi employees.
The transaction is anticipated to result in a regulatory capital release of $1.4 billion. When the deal was announced, it was expected that Axis Bank would pay Citigroup $1.6 billion to acquire the consumer business, subject to customary closing adjustments.
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HSBC Agrees on Revised Terms to Sell French Unit to Cerberus
HSBC Holdings (HSBC - Free Report) has agreed upon revised terms to sell its unprofitable French retail business to Cerberus Capital Management-backed My Money Group. In June 2021, HSBC announced the sale of the French business after conducting a review of the unit and finding it to be unprofitable.
However, in April 2023, HSBC said that the deal had become less certain because the unexpected rise in interest rates in France had “significantly increased” the capital requirements for the buyers at closing.
Nevertheless, HSBC has tweaked the terms of the deal, which is now expected to close in January 2024.
Per the revised agreement, HSBC will retain a €7 billion ($7.6 billion) portfolio of home loans it had originally expected to sell to My Money Bank, while Cerberus will inject €225 million of additional capital into the business.
At the end of 2022, the French business had a total loan book of €23.4 billion.
The revised deal is expected to lead to a new pretax loss of $2.7 billion, with as much as $2.2 billion recognized in the first half of this year. When the deal was first announced in 2021, it was expected that the sale would result in losses of about $2.3 billion, plus $700 million of goodwill charges.
HSBC said in a statement, “The changes do not alter the underlying rationale for the transaction, which will allow HSBC Continental Europe to focus on its international wholesale business model. There is no immediate change to the accounting treatment of the French retail business — there will be an information and consultation process with respective works councils and the transaction remains subject to regulatory approvals.”
Conclusion
The sale of the French unit was announced as part of HSBC’s transformation plan, which is aimed at reshaping underperforming businesses, simplifying complex organization and reducing costs.
As part of the transformation, announced in February 2020, the bank plans to scale back operations in Europe and North America and focus more on the profitable Asia region, including Hong Kong and China.
In sync with this, in 2022, HSBC acquired 100% of the issued share capital of AXA Insurance in Singapore and L&T Investment Management Limited (LTIM). Also, the company raised its ownership stake in its China securities joint venture, HSBC Qianhai Securities Limited, to 90% from 51%.
Moreover, the company intends to position itself as a top bank for high-net-worth and ultra-high-net-worth clients in Asia and plans to re-launch its private banking business in India soon. These initiatives will help the company strengthen its position in the region, which constitutes more than half of its operations.
Since the start of the transformation plan in 2020, HSBC has realized gross savings of $5.6 billion. It expects to achieve an additional $1 billion of gross cost savings this year due to the actions undertaken in 2022.
Further, as part of this initiative, HSBC entered into an agreement to sell its Canada banking business to the Royal Bank of Canada in November 2022 (now expected to close in the first quarter of 2024). Also, the company has exited from the U.S. retail banking space and is soon expected to exit from Greece and Russia.
Over the past six months, shares of HSBC have gained 29.3% compared with 12.3% growth recorded by the industry.
Image Source: Zacks Investment Research
Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Restructuring Efforts by Other Finance Firms
As part of its plans to exit retail banking in Italy, Barclays PLC (BCS - Free Report) has been searching for bidders for its Italy mortgage loans. BCS is seeking to sell €5 billion ($5.3 billion) of its mortgage loans in the country.
According to the people with knowledge of the matter, Barclays has started the divestiture process for a portfolio of mainly performing loans to individuals, while the package also includes non-performing mortgages and high-risk loans in Swiss francs.
Barclays’ strategy to exit the retail business follows its plan to dispose of non-core consumer operations in Europe and shift focus to the most profitable businesses in the U.K. and the United States.
Citigroup Inc. (C - Free Report) announced the completion of the sale of its India consumer business to Axis Bank Limited. The sale was announced in March 2022. The sale includes retail banking, credit cards, wealth management and consumer loans, as well as the transfer of around 3,200 Citi employees.
The transaction is anticipated to result in a regulatory capital release of $1.4 billion. When the deal was announced, it was expected that Axis Bank would pay Citigroup $1.6 billion to acquire the consumer business, subject to customary closing adjustments.