HSBC is braced for a $1 billion hit after striking a deal to sell its business in Argentina and quit the hyperinflation-riven country.
The FTSE 100 bank said that the Buenos Aires-based Grupo Financiero Galicia had agreed to buy the division, which includes more than 100 branches and has about 3,100 employees, for $550 million.
The deal with Argentina’s fifth largest bank is likely to result in HSBC suffering a $1 billion pre-tax loss in its first-quarter results this month, although the size of the blow could change and will be known only once the sale has been finalised, which is expected within the next 12 months.
It also will lead to the Asia-focused lender taking about $4.9 billion in historical foreign exchange reserve losses that have built up over a period of years and that increased by $1.8 billion in 2023 alone, owing to the recent sharp devaluation of the Argentinian peso against the US dollar.
While these currency translation losses have been reflected already in HSBC’s capital position, they lay bare the scale of the volatility that the British bank has faced in Argentina.
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The populist Javier Milei was elected as the country’s president last year and he has devalued the peso by more than 50 per cent as part of a package of measures intended to quell an economic crisis. Inflation in Argentina has soared in recent years, with the annual rate hitting 276.2 per cent in February.
The slump in the peso erased $548 million from HSBC’s pre-tax profits in the final quarter of 2023, an outsized hit for a business that is small in the context of the sprawling scale of the wider group.
• HSBC shedding no tears over Argentine exit
Noel Quinn, HSBC’s chief executive, 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 shares closed up ¼p at 644¾p.
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The sale of the Argentinian business is the latest in a series of disposals agreed by Quinn, 62, as he seeks to streamline HSBC and tilt the lender further towards Asia, where the bank has its roots. The London-based lender was founded 159 years ago in Hong Kong, which remains its single biggest market, and has extensive operations across China and Asia more broadly, where it makes most of its money.
Quinn has allocated further capital to Asia since taking charge of HSBC in 2019 in an effort to harness the tailwinds of fast economic growth in the region. This has involved selling non-core businesses elsewhere, including the bank’s retail operations in France and the United States and its Canadian division.
Efforts to streamline the group also have helped Quinn to counter criticism that HSBC has faced from Ping An, the Chinese insurer that is its biggest shareholder. It emerged two years ago that Ping An wanted Quinn to split the bank in two by spinning off its Asia business, an idea that the bank’s board vehemently opposed. Some retail shareholders in Hong Kong rallied behind Ping An and forced a vote on the break-up proposal at HSBC’s annual meeting last year, but most other investors rejected the idea.
