Published on 9 Apr 2024 on Zacks via Yahoo Finance

HSBC to Divest Argentina Business Under Asia Pivot Strategy

HSBC Holdings PLC HSBC 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.

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