HSBC says it first quarter results will be hit by a $1billion (£790.1million) pre-tax loss following the £434.6million sale of its Argentinian bank to Grupo Financiero Galicia.
Additionally, it said that when the deal closes, it will have to take a £3.9billion hit from historic foreign exchange losses run up by HSBC Argentina. HSBC will unveil its first quarter results next month.
Grupo Financiero Galicia is Argentina’s largest privately owned financial business and it expects the deal to be completed sometime over the next 12 months. It will pay HSBC using a mixture of cash, debt and shares.
HSBC chief executive Noel Quinn said that it decided to sell the business after concluding that its resources would be better spent elsewhere, given its limited interaction with the rest of the bank and its volatile earnings history. HSBC has been shifting its focus and capital towards higher returning Asian markets and international trade.
“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,” Quinn said.
“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.”
The bank added that the disposal and the expected losses will have an “insignificant impact” upon its financial strength.
Quilter Cheviot financials analyst Will Howlett said that HSBC’s decision to dispose of its Argentine business was consistent with its “pattern of withdrawing from markets where it has struggled, such as France and Canada” and focussing on more profitable areas.
“While the loss is substantial, it’s important to note that it will not significantly affect the bank’s capital or dividend policy, as these losses are not factored into HSBC’s 50% payout ratio,” he said. ““Overall, this move is indicative of HSBC’s larger shift towards a more focused and potentially more profitable business model.”
