By P.R. Venkat


HSBC Holdings is selling its Argentina business for over half a billion dollars, the bank's latest exit from markets that are no longer core to its business strategy.

The lender has agreed to sell HSBC Argentina to Grupo Financiero Galicia, the country's largest private financial group, for $550 million, HSBC said Tuesday. It will take a $1 billion hit from the divestment in the first quarter.

Galicia will buy HSBC's Argentina business, which includes banking, asset management and insurance, together with $100 million of subordinated debt.

Under the deal, HSBC is to receive the purchase consideration via a combination of cash, loan notes and American depositary receipts from Grupo Financiero Galicia. The ADRs will account for around half of the consideration received and represents less than a 10% economic interest in Galicia.

The U.K.-based lender is Europe's largest bank by market value. It generates most of its income in Asia, particularly in Hong Kong, where it runs a significant retail and commercial lending business.

HSBC has been on a restructuring drive since late 2019, aiming to simplify its structure. To this end, it has been selling assets in North America and Europe to focus more on higher-growth areas such as Asia and the Middle East.

Earlier this year, the bank sold its Canadian business to Royal Bank of Canada for $10.1 billion and completed the sale of its retail banking business in France.

"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," HSBC Group Chief Executive Noel Quinn said.

Argentina's economy has been in crisis mode for some time, grappling with spiraling inflation and a depreciating currency. Price growth has eased a bit recently, pulling back from a December peak of 25.5% but remaining in double digits.

He said the bank aims to focus its resources on higher-value opportunities across its international network.

HSBC expects to recognize a $1.0 billion pretax loss on disposal in the first quarter from the asset sale. Still, the divestment won't significantly affect its common equity tier 1 ratio--a key measure of a bank's core equity capital.

The bank expects to recognize $4.9 billion in historical cumulative foreign-currency translation reserve losses upon the deal's closing, which is expected within the next 12 months. The losses have already been recognized in capital and will have no impact on CET1 or tangible net asset value, HSBC said.

"The transaction will be treated as a material notable item and excluded from the dividend payout calculation," HSBC said, reiterating its 50% dividend payout ratio target for 2024.


Write to P.R. Venkat at venkat.pr@wsj.com


(END) Dow Jones Newswires

04-09-24 0236ET