HSBC Latin America BV, a wholly owned subsidiary of HSBC Holdings plc, has entered into a binding agreement to sell its Argentina business to Grupo Financiero Galicia.
Galicia will acquire all of HSBC Argentina’s banking, asset management and insurance operations, along with $100 million of subordinated debt issued by HSBC Argentina and held by other HSBC entities, for a consideration of US$550 million. which will be adjusted for the effects of operating profit or loss and fair value on HSBC Argentina’s securities portfolios during the period between December 31, 2023 and closing.
HSBC expects to receive the purchase consideration in a combination of cash, loan notes and Galician American Depositary Receipts (ADRs), with the ADRs representing approximately half of the consideration and representing less than a 10% economic interest in Galicia.
The financial impact of the transaction on the HSBC Group is currently expected to be (based on financial data as at 29 February 2024):
- A pre-tax loss of US$1.0 billion on reclassification of the business as held for sale in the first quarter of 2024. There would be no tax credit for the loss recognized. Between signing and closing, the loss on the sale will vary based on changes in the net assets of the divested business and related hyperinflation and foreign currency translation, the fair value of the consideration including price adjustments and migration costs.
- Insignificant impact on Group CET1 on closure: initial reduction of approximately 0.1ppt in 1Q24 to recognize pre-tax loss on disposal, largely offset by estimated reduction in RWAs (on a PRA basis ) during shutdown.
- The recognition in the income statement of US$4.9 billion in historical foreign currency translation reserve losses at closing. These reserve losses have accumulated over many years and result from the cumulative translation of HSBC Argentina’s carrying amount in Argentine pesos into US dollars and are included in CET1 capital in each reporting period. During 2023, as a result of the devaluation in Argentina, foreign exchange reserve losses increased by US$1.8 billion. These reserve losses have already been recognized in capital. Recognition in the income statement will have no effect on CET1 or tangible net asset value. As with the pre-tax loss on completion, this amount will vary between signing and closing primarily due to movements in the USD:ARS exchange rate.
The transaction will be treated as a significant asset. HSBC Group’s dividend payout ratio target remains at 50% for 2024, excluding significant items and related impacts. HSBC Group continues to target a return on average tangible equity in the mid-teens for 2024, excluding the impact of notable items.
The transaction is subject to conditions, including regulatory approvals, and is expected to close within the next 12 months.