HSBC

In this news

HSBC will sell its business in Argentina for US$550 million to Grupo Financiero Galicia and Banco Galicia, which will become the first private financial entity in the country and the second in size behind Banco Nación, as reported to the markets. this morning

The operation includes the sale of all HSBC Argentina businesses, which include the Bank, Asset Management and Insurance in addition to US$100 million of subordinated debt issued by HSBC Bank Argentina.

In payment, GrupoGalicia and Banco Galicia, its subsidiary, will deliver a combination of cash, private note and ADR. Half of the payment will be in ADR (American depositary receipts) from Grupo Financiero Galicia, which in turn represents less than 10% of the value of the Argentine entity.

The first information was issued by HSBC during the early hours of today and first thing in the morning the parties sent statements to the National Securities Commission.

What will happen to customers

“The sale is expected to be completed within the next 12 months, subject to regulatory approval. Rest assured, we are committed to supporting you and will do everything possible to ensure an orderly transition,” HSBC explained to its clients to through an email.

In an email, HSBC specified that “the products and services you have with HSBC, such as Banking, Insurance and/or Investment Products, will continue to be provided normally.”

“At the end of the transition period, which we expect to be completed within the next 12 months, HSBC will become a company owned by Grupo Financiero Galicia, which will continue to provide banking services. There is nothing further you need to do at this stage, as Our team will work closely with Grupo Financiero Galicia to help ensure a smooth transition and continuity of service.

The structure of the operation

Early in the morning, Banco Galicia informed the markets that Banco Galicia will be the buyer of 57.89% of the Direct Shares, and Grupo Galicia the buyer of the remaining 42.11%.

According to the communication, Banco Galicia and Grupo Galicia will have 99.99383% of the share capital and votes of: HSBC Bank Argentina SA and 100% of HSBC Argentina Holdings SA, HSBC Participaciones (Argentina) SA, HSBC Global Asset Management SA , HSBC Seguros de Vida (Argentina) SA and HSBC Seguros de Retiro (Argentina) SA

And he explained that for the purchase: Banco Galicia will pay US$274,977,500 and Grupo Galicia will pay with class B shares in favor of HSBC LA represented in ADR for US$200,022,500.

Within the price, Grupo Galicia purchases for US$ 75 million negotiable obligations issued by HSBC Bank Argentina whose creditor is HSBC Latin America Holdings (UK) Limited, whose maturity operates in 2027 and its nominal value is US$ 100 million, always that they are not previously pre-cancelled.

Grupo Financiero Galicia is controlled by the Escasany, Ayerza and Braun families, owners of 19.1% of the shares and 54% of the votes and is the owner of Banco Galicia.

Transformacin

For Argentina it will also mean a step towards a greater transformation of the banking market, where four groups will be consolidated, with three main actors.

The combined assets of Galicia and HSBC are $1.8 trillion, according to the latest BCRA ranking.

On the national private side, as comprehensive banks, Galicia deals with Banco Macro, which purchased Ita’s operations in Argentina in 2023 to grow in volume and expand in the AMBA with the Brazilian bank’s branch network.

Galicia will become the second bank in Argentina by assets and the first by national capital.

Then, Santander and BBVA will provide competition for the private market from foreign perspectives.

The other block is public banking, headed by Banco Nación, the first national entity, which will also seek a new destination based on the incorporation of private capital according to the Government’s decision, accompanied by Banco Provincia de Buenos Aires.

Strategy

From HSBC’s point of view, the sale will allow it to focus on Asia and escape from a small Argentine macroeconomic and exchange hell of many years during which it will entail a significant cost.

“It allows us to focus our resources on higher value opportunities across our international network,” said Noel Quinn, Group Chief Executive of HSBC Holdings, explaining the sale.

From HSBC’s point of view, the sale will allow it to focus on Asia and escape from a small Argentine macroeconomic and exchange hell of many years during which it will entail a significant cost.

“HSBC Argentina is a business primarily focused on the domestic market, with limited connectivity to the rest of our international network. Additionally, given its size, it also generates substantial volatility in the Group’s earnings when its results are converted to US dollars. Galicia is better positioned to invest and grow the business,” added Quinn.

During the last weeks there was concern and concern among the employees of the financial institution and even La Bancaria intervened, which raised its guard against the possibility of layoffs as a result of the operation.

Impact on HSBC

For HSBC, a global firm based in London, it will mean a pre-tax loss of $1 billion in the first quarter of 2024. But it will mean writing off $4.9 billion of the rate translation loss reserve. exchange.

“These loss reserves have been accumulated for many years and come from the cumulative conversion of HSBC Argentina’s book value in Argentine pesos to US dollars and are included in Tier 1 common equity at each reporting period,” the statement added. distributed by HSBC Bank Argentina.

“During 2023, as a result of the devaluation in Argentina, the reserve for foreign currency conversion loss will increase by US$1.8 billion,” HSBC explained.

It was not the only loss that HSBC accumulated due to the local situation. The statement also states that “during 2023, as a result of the devaluation in Argentina, the reserve for foreign currency conversion loss will increase by US$1.8 billion.”

By purchasing HSBC, Galicia will gain access to a network of more than 100 branches, approximately 3,100 employees and services to around one million clients.