The Argentine subsidiary of HSBC announced its sale for 550 million dollars to Banco Galicia

HSBC is the ninth largest bank in the country, Galicia the third

The banking giant HSBC announced this Tuesday the sale of its subsidiary in Argentina to Grupo Financiero Galicia for a total of 550 million dollars. In this way, the decision to sell everything includes the entire local business such as the Bank, Asset Management and Insurance companies.

The decision of the British banking entity has to do with the decision to focus its activities in Asia. “This transaction is another important step in the execution of our strategy and allows us to focus our resources on higher value opportunities across our international network,” HSBC CEO Noel Quinn said in a statement.

The size of the Argentine market and the exchange and monetary fluctuations to which it is subject were not overlooked when deciding on the operation. In particular, the strong devaluations of the peso had their mention: “HSBC Argentina is a business mainly focused on the domestic market, with limited connectivity with the rest of our international network. Furthermore, given its size, it also generates substantial volatility in the Group’s earnings when its results are converted into US dollars,” Quinn explained.

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

But Argentina is not the only country that the multinational wants to leave. This year HSBC completed the sale of its Canadian unit and its retail banking business in France. Previously, it also agreed to sell its operations in Greece and Russia. The company made public that it was seeking to abandon or reduce its presence in twelve markets, although it did not specify which ones.

“Galicia will acquire all of HSBC Argentina’s businesses that include the Bank, Asset Management and Insurance along with USD 100 million of subordinated debt issued by HSBC Bank Argentina and held by other HSBC entities, for a consideration of USD 550 million, which “will be adjusted by the results of the business and the fair value gains or losses of the HSBC Argentina securities portfolio during the period between December 31, 2023 and the closing of the operation,” the official notice detailed, which clarified that part The payment will be made with shares of the Argentine capital bank that are listed on Wall Street.

“HSBC expects to receive the purchase consideration in a combination of cash, private note and American Depositary Receipts (ADRs) from Galicia, with the ADRs representing around half of the consideration received, representing less than 10% of the economic interest in Galicia. ”he added.

HSBC has more than 100 branches in Argentina with around 3,100 employees. In 2023 it reported $239 million in pre-tax profits in the country.

HSBC has more than 100 branches in Argentina with around 3,100 employees

Galicia is the third largest bank in the country in the ranking by assets. And number one among private entities, since it is only surpassed by Banco Provincia and Banco Nación. HSBC, for its part, managed the sixth most important asset in the country among private entities and occupies ninth position in the ranking that also includes public banks.

With this purchase, Galicia will become the second bank in the country, only behind Banco Nación, since the sum of its assets would reach 7,928 billion pesos, against the 6,119 billion managed by Banco Provincia.

In a message to its clients, HSBC said that “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,” they added in the statement.

Galicia is the largest private bank in the country, in the ranking by assets. It is the third if public banks are counted.

2023 was a year of enormous profitability for banks operating in Argentina. The latest report on Banks from the Central Bank explained that “the group of financial entities accumulated total comprehensive results in homogeneous currency equivalent to 5.4% of assets (ROA) and 27.6% of net worth (ROE).”

The ROA allows us to evaluate the profitability of a company in relation to its total assets and the ROE determines the profitability of a company in relation to the equity of its shareholders.

Among the main causes that explain this surge in bank profitability is the increase in income from financial margin – the difference they obtain from the rates they charge for loans or investments and the rates they pay to their depositors – thanks, more than anything, to the high rates that the Treasury paid for its debt issues in pesos.

However, the high profitability of its operations does not necessarily imply a healthy business performance. In recent months, many entities began to dismantle their assets due to the drop in reference rates combined with the setting of a floor for what they pay for time deposits. The business of placing loans, in the midst of high inflation and the decline in activity, does not appear to be interesting either.

In this context, HSBC is not the first foreign capital bank to analyze leaving the local market. Last year, for example, Brazilian Itaú sold its operations in the country to Banco Macro. Those considering leaving are usually multinational banks that, in each market in which they operate, are among the leaders. Itaú never achieved that role in the country, but HSBC does play among the heavyweights in the local market.

However, the growth of the Argentine business did not appear promising for many of them. And national capital entities take advantage of the lack of interest from global banks to expand their participation in the local market.

Without going any further, the risk rating agency Moody’s said that the outlook for Argentine entities is negative.

“The outlook for the banking system remains negative due to severe operating conditions that restrict profit generation potential and banking activities,” he explained in a report.

“The expected recession, rising inflation in 2024 and the new government’s ambitious reform agenda will impose significant implementation risks. Changes in monetary policy, including recent interest rate cuts, will pressure margins and profitability in general, although from the historical highs of 2023, Moody’s added.