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HSBC to Divest Argentina Business Under Asia Pivot Strategy
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HSBC Holdings PLC (HSBC - Free Report) entered into a joint agreement with Grupo Financiero Galicia (“Galicia”) to sell its Argentina business. The transaction is valued at $550 million and aims to shift its focus on the core Asian operations. The deal, subject to regulatory approvals, is expected to be completed within the next 12 months.
Per the agreement, Galicia will acquire HSBC’s entire Argentina business, including banking, asset management and insurance. The firm will also assume $100 million of subordinated debt issued by HSBC Argentina and held by other HSBC entities. The consideration is subject to adjustments for the business results and fair value gains or losses on HSBC Argentina’s securities portfolios for the period between Dec 31, 2023, and the closing of the transaction.
HSBC will receive a combination of cash, loan notes and Galicia’s American Depository Receipts (ADRs) as part of the total consideration. The ADRs will account for roughly 50% of the consideration, representing less than 10% economic interest in Galicia.
HSBC Argentina has more than 100 branches, with roughly 3,100 employees and approximately one million clients. As of Feb 29, 2024, it had total assets of $4.7 billion, risk-weighted assets of $7.9 billion and equity of $1.4 billion.
HSBC will incur $1 billion as pre-tax loss pertaining to the deal during the first quarter of 2024 due to reclassification as held for sale. Besides, on closing, $4.9 billion will be recognized in the income statement as historical foreign currency translation reserve losses.
Noel Quinn, CEO of HSBC, said, “This transaction is another important step in the execution of our strategy and enables us to focus our resources on higher value opportunities across our international network. HSBC Argentina is largely a domestically focused business, with limited connectivity to the rest of our international network. Furthermore, given its size, it also generates substantial earnings volatility for the Group when its results are translated into US dollars.”
Notably, the company remains committed to its operations in Mexico and the United States.
The company further affirmed the targeted dividend payout ratio at 50% and return on average tangible equity target at the mid-teens range for 2024. Both the targets exclude material notable items and related impacts.
Our Take
The divestiture of Argentina's business aligns with HSBC’s strategic pivot to Asian operations and capital shifting to mainly India and China. This is further established by the company’s exit from business activities and various countries in the past few years.
Last month, HSBC divested its Canadian retail business to Royal Bank of Canada (RY - Free Report) for C$13.5 billion. The acquisition expands RY’s international banking capabilities and enhances its global integration with its Canadian clients. Further, HSBC sold its French retail operations this January to Crédit Commercial de France, a subsidiary of My Money Group.
Moreover, this February, HSBC received approval to sell its Russian unit to Expobank to exit Russian operations, while another divestiture agreement was made by the company with Ardshinbank to sell its Armenian unit.
In October 2023, HSBC announced a deal to acquire Citigroup's retail wealth management business in China. Also, it re-launched its private banking business in India as the country has been experiencing a surge in the number of super-rich.
Over the past six months, shares of HSBC have rallied 3.1%, underperforming the industry’s growth of 17%.
Other Financial Services Firms Taking Similar Steps
Last month, The Goldman Sachs Group, Inc. (GS - Free Report) completed the sale of GreenSky, its home-improvement lending platform, to a consortium that includes KKR, Bayview Asset Management and CardWorks, and is led by investment firm Sixth Street Partners.
GreenSky was acquired by GS in 2022 for $1.7 billion. However, in October 2023, the company announced its intention to dispose of the business in a major business restructuring initiative.
Similarly, Ally Financial Inc. (ALLY - Free Report) completed the divestiture of its point-of-sale financing business Ally Lending to Synchrony. The move reflects ALLY's commitment to optimizing its capital allocation and prioritizing resources toward high-growth areas.
For Ally Financial, this transaction is part of a broader initiative to invest resources in growing scale businesses and strengthen relationships with dealer customers and consumers.
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HSBC to Divest Argentina Business Under Asia Pivot Strategy
HSBC Holdings PLC (HSBC - Free Report) entered into a joint agreement with Grupo Financiero Galicia (“Galicia”) to sell its Argentina business. The transaction is valued at $550 million and aims to shift its focus on the core Asian operations. The deal, subject to regulatory approvals, is expected to be completed within the next 12 months.
Per the agreement, Galicia will acquire HSBC’s entire Argentina business, including banking, asset management and insurance. The firm will also assume $100 million of subordinated debt issued by HSBC Argentina and held by other HSBC entities. The consideration is subject to adjustments for the business results and fair value gains or losses on HSBC Argentina’s securities portfolios for the period between Dec 31, 2023, and the closing of the transaction.
HSBC will receive a combination of cash, loan notes and Galicia’s American Depository Receipts (ADRs) as part of the total consideration. The ADRs will account for roughly 50% of the consideration, representing less than 10% economic interest in Galicia.
HSBC Argentina has more than 100 branches, with roughly 3,100 employees and approximately one million clients. As of Feb 29, 2024, it had total assets of $4.7 billion, risk-weighted assets of $7.9 billion and equity of $1.4 billion.
HSBC will incur $1 billion as pre-tax loss pertaining to the deal during the first quarter of 2024 due to reclassification as held for sale. Besides, on closing, $4.9 billion will be recognized in the income statement as historical foreign currency translation reserve losses.
Noel Quinn, CEO of HSBC, said, “This transaction is another important step in the execution of our strategy and enables us to focus our resources on higher value opportunities across our international network. HSBC Argentina is largely a domestically focused business, with limited connectivity to the rest of our international network. Furthermore, given its size, it also generates substantial earnings volatility for the Group when its results are translated into US dollars.”
Notably, the company remains committed to its operations in Mexico and the United States.
The company further affirmed the targeted dividend payout ratio at 50% and return on average tangible equity target at the mid-teens range for 2024. Both the targets exclude material notable items and related impacts.
Our Take
The divestiture of Argentina's business aligns with HSBC’s strategic pivot to Asian operations and capital shifting to mainly India and China. This is further established by the company’s exit from business activities and various countries in the past few years.
Last month, HSBC divested its Canadian retail business to Royal Bank of Canada (RY - Free Report) for C$13.5 billion. The acquisition expands RY’s international banking capabilities and enhances its global integration with its Canadian clients. Further, HSBC sold its French retail operations this January to Crédit Commercial de France, a subsidiary of My Money Group.
Moreover, this February, HSBC received approval to sell its Russian unit to Expobank to exit Russian operations, while another divestiture agreement was made by the company with Ardshinbank to sell its Armenian unit.
In October 2023, HSBC announced a deal to acquire Citigroup's retail wealth management business in China. Also, it re-launched its private banking business in India as the country has been experiencing a surge in the number of super-rich.
Over the past six months, shares of HSBC have rallied 3.1%, underperforming the industry’s growth of 17%.
Image Source: Zacks Investment Research
Currently, HSBC carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Financial Services Firms Taking Similar Steps
Last month, The Goldman Sachs Group, Inc. (GS - Free Report) completed the sale of GreenSky, its home-improvement lending platform, to a consortium that includes KKR, Bayview Asset Management and CardWorks, and is led by investment firm Sixth Street Partners.
GreenSky was acquired by GS in 2022 for $1.7 billion. However, in October 2023, the company announced its intention to dispose of the business in a major business restructuring initiative.
Similarly, Ally Financial Inc. (ALLY - Free Report) completed the divestiture of its point-of-sale financing business Ally Lending to Synchrony. The move reflects ALLY's commitment to optimizing its capital allocation and prioritizing resources toward high-growth areas.
For Ally Financial, this transaction is part of a broader initiative to invest resources in growing scale businesses and strengthen relationships with dealer customers and consumers.