In an effort to shed its non-core assets and improve efficiency, HSBC Latin America Holdings Limited – a fully-owned subsidiary of HSBC Holdings plc – has entered into a deal to sell HSBC Bank (Panama) S.A. to Bancolombia S.A. The deal is anticipated to close by the third quarter of 2013, subject to regulatory approvals and other conditions.
Bancolombia will pay $2.1 billion in cash, three times the estimated net asset value of HSBC Panama, on closure. HSBC acquired the majority of its Panamanian division in 2006 when it bought Grupo Banistmo SA for $1.77 billion.
The sale of the this unit is part of the banking giant’s strategy to concentrate more on economies where it has a superior market share, such as Brazil, Mexico and Argentina.
HSBC has resorted to aggressive restructuring since 2011. These initiatives involve streamlining of its worldwide operations by shedding non-core assets and trimming workforce. The lender has sold 46 assets, which include units in Costa Rica, El Salvador and Honduras. The bank aims to increase return on equity to at least 12% and reduce expenses by roughly $3.5 billion by the end of 2013.
Earlier this month, HSBC concluded the sale of its stake in Chinese insurance giant Ping An Insurance (Group) Company of China, Ltd to Thailand-based Charoen Pokphand Group. The deal fetched HSBC a post-tax gain of $2.6 billion, after deducting the carrying value of an investment in Ping An as well as reclassification of the connected foreign exchange and other reserves.
In May 2012, HSBC sold some of its businesses in Latin America for about $400 million in cash to Colombia’s Banco GNB Sudameris SA. The deal included units in Colombia, Peru, Uruguay and Paraguay, having an aggregate asset value of $4.4 billion at the end of 2011. Earlier in Jan 2012, the bank sold its Honduras unit to Bogota-based Banco Davivienda SA.
The planned divestiture of the Brazilian consumer finance business will not only bring long-term benefits for HSBC, but also help the company concentrate on its emerging market strategy. Moreover, we expect HSBC to continue with such strategic sale of business units, thereby enhancing its capital strength going forward.
Many other European banks have adopted almost similar cost-cutting measures in the wake of a sluggish economic environment compounded by the sovereign-debt crisis in the Eurozone. Deutsche Bank AG (DB - Free Report) , Credit Suisse Group (CS - Free Report) and ING Groep NV (ING - Free Report) have also been divesting non-core assets and eliminating jobs to reinforce profits over the past couple of years.
Currently, HSBC carries a Zacks Rank #3 (Hold).