Europe’s largest bank by market value, HSBC (HSBA.L), is strategically selling its business in Argentina, incurring a $1 billion loss on the deal, as part of its ongoing pivot towards Asia. This shift is driven by the bank’s recognition of greater opportunities in Asia compared to other markets like North America and France. The sale encompasses HSBC Argentina’s banking, asset management, and insurance operations, along with $100 million of subordinated debt.
HSBC’s decision to sell its operation in Argentina is a testament to the bank’s commitment to strategically allocate resources to higher-value opportunities across its global network, according to Chief Executive Noel Quinn. This move is part of a series of exits from businesses in certain markets that no longer align with the bank’s strategy, including the recent sale of its Canadian business to Royal Bank of Canada and the sale of its retail business in France to My Money Group earlier this year.
The sale of the Argentinian business, which has around 100 branches and 3,100 employees, is expected to be completed within 12 months. As part of the deal, HSBC will recognize $4.9 billion in historical cumulative foreign currency translation reserve losses on closing, which it will book to its common equity tier 1 capital ratio (CET1 ratio). The bank’s CET1 ratio is a key measure of its financial strength.
In recent years, Argentina has been struggling with a hyperinflationary economy, and its peso currency has been particularly volatile. In December, the currency reached a record low of around 56 pesos to the dollar. That made it more expensive to buy goods and services in the country, pushing prices and inflation up sharply.
HSBC says the Argentinian business has “limited connectivity to the rest of our international network and generates substantial earnings volatility when results are translated into US dollars.” The company will continue to focus its investment efforts in India, Singapore, and China to drive growth in Asia.
The bank expects the sale to have a marginal impact on its Common Equity Tier 1 ratio at close, which is expected in the first quarter of 2024. HSBC, which is aiming to lift its CET1 ratio by the end of the decade to 15 percent of total assets, has also been reducing its exposure to less mature markets such as Russia and Mexico. The bank’s Latin American business accounts for only about 2 percent of its total assets. HSBC has faced increased shareholder scrutiny of its geographic spread and global strategy in recent years. It defeated a resolution last year from Hong Kong-based shareholders, backed by major Chinese investor Ping An, to spin off its Asia division to fully realize the value of its most lucrative business. HSBC’s shares rose 0.3 percent to close at HK$3.09 in Hong Kong on Tuesday. The stock has gained almost 17 percent this year.
