9th Apr 2024 10:18
(Alliance News) - HSBC Holdings PLC on Tuesday said it will take a USD1 billion hit from the sale of its business in Argentina, but believes the move is for the greater good in the long run.
"HSBC has put itself on a self-imposed diet, trying to shake off a few pounds of unnecessary weight that it has been dragging around for ages," said AJ Bell's Russ Mould.
"Last year it indicated a desire to find an exit from up to one in five countries in which it operates, in a bid to have a more streamlined operation and a sharper focus."
On Tuesday, HSBC said it will sell its Argentinian arm to Grupo Financiero Galicia SA, which it called the largest private financial group in the South American country.
The London-based, Asia-focused lender said the USD550 million sale of HSBC Latin America BV marked an important step in the execution of its strategy of focusing its resources on "higher value opportunities" across its international network.
Chief Executive Officer Noel Quinn said: "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. Galicia is better placed to invest in and grow the business."
HSBC said the sale will have an insignificant impact on its Common Equity Tier 1 ratio by the time of its closing, which is expected to be within the next 12 months. The CET1 ratio compares a bank's capital against its risk assets, with a higher ratio being more financially sound.
HSBC said it will recognise a USD1.0 billion pretax loss on disposal in its first quarter results for 2024, which are scheduled for release on April 30. The Argentinian business will be reclassified as held for sale in those results.
The Argentine hit will be more than offset in HSBC's first-quarter accounts by a USD4.9 billion gain on last month's sale of HSBC Bank Canada to Royal Bank of Canada. HSBC has said it will announce a special dividend of USD0.21 per share in its first quarter results, in addition to any interim dividend, to return some of the Canada gain to shareholders.
Hargreaves Lansdown's Sophie Lund-Yates noted that the hit will also "be offset by relief that the group is coming good on its plans to streamline."
"HSBC is increasingly allocating capital to India and China, as it works to complete its Asia pivot. This is something that carries some risks in the short-to-medium term, but should be viewed through the lens of a growth opportunity over the longer-term. While the numbers at stake from the Argentina sale sound huge, this is very much in-line with recent disposals, including the Canadian and French retail businesses," Lund-Yates explained.
Mould added that "It's all for the greater good in trying to create the blueprint for how HSBC should look in the future, with Asia at the heart of its efforts."
HSBC shares were 0.5% higher at 647.60 pence each on Tuesday morning in London.
By Sophie Rose, Alliance News senior reporter
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