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HSBC takes $1 billion hit from Argentina sale as Asia pivot continues

Published 09/04/2024, 05:24
Updated 09/04/2024, 19:21
© Reuters. HSBC logo is seen in this illustration taken December 22, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Rishav Chatterjee and Lawrence White

LONDON (Reuters) -HSBC is selling its business in Argentina and booking a $1 billion loss on the deal, the bank said on Tuesday, as it continues to shrink its once globe-spanning empire to focus on Asia.

HSBC (LON:HSBA) is selling the business, which covers banking, asset management and insurance, to Argentina's fifth largest bank Grupo Financiero Galicia for $550 million, the British bank said.

HSBC CEO Noel Quinn has sought to simplify the sprawling lender to improve performance by exiting several markets in which it has under-performed, including France and Canada.

The sale also fits with the bank's Asia pivot strategy as it shifts capital, especially to India and China.

HSBC's shares were flat in early trading in London, while its Hong Kong-listed shares gained 1.1%.

"Argentina has been a problematic market for HSBC in recent years given hyperinflation in the region and a sharp currency devaluation, which has resulted in significant earnings volatility for the business," said Gary Greenwood, analyst at Shore Capital.

"Exiting Argentina also represents a further step in management’s strategy to simplify the Group and concentrate resources on areas of the business where greater shareholder value can be created," he said.

As well as booking a loss in the first quarter, HSBC said the deal would lead it to recognise $4.9 billion in historical currency translation reserve losses when the sale closes.

The losses grew by $1.8 billion last year as a result of the devaluation of the Argentinian peso, the bank said.

HSBC said those losses had already been recognised in its capital levels and would have no impact on its core capital or asset value levels.

"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," Quinn said in a statement.

"HSBC Argentina is largely a domestically focused business, with limited connectivity to the rest of our international network," he said.

The Argentina business, given its size, creates substantial earnings volatility for the group when its results are translated into U.S. dollars, according to HSBC.

HSBC has faced shareholder scrutiny in recent years over its geographic spread and overall strategy.

© Reuters. A drone view shows HSBC's headquarters, as the bank is selling its business in the country, in Buenos Aires, Argentina April 9, 2024. REUTERS/Matias Baglietto

The bank defeated a resolution last year from Hong Kong-based shareholders, and backed by major Chinese investor Ping An, to potentially spin-off its Asia unit to try to fully realise the value of its most lucrative business.

The bank said it remained committed to the United States, where it exited retail banking in 2021, and to Mexico, a question mark for the bank ever since it paid $2 billion in 2012 to U.S. regulators over lax money laundering controls.

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