HSBC To Divest Argentina Business In Acquisition Agreement

Grupo Financiero Galicia, a prominent private financial group, is set to acquire HSBC Argentina, a branch network encompassing over 100 branches and employing 3,100 individuals.

Argentina has been grappling with soaring inflation, hitting a staggering 276.2 per cent last month, making it the world's highest. This economic turbulence is evidenced by the depreciation of the peso, with the exchange rate ballooning from USD 1 equating to 43 pesos five years ago to now exceeding 860 pesos.

HSBC's presence in Argentina dates back to 1997 when it assumed control of Banco Roberts, rebranding it thereafter. The bank expanded its reach into Latin America by acquiring the struggling Bamerindus bank in Brazil the same year, marking a significant advancement in the region. However, HSBC later divested its retail banking operations in Brazil in 2015, opting to retain only its investment banking segment.

As part of its strategic realignment towards burgeoning markets in Asia, HSBC has been divesting various global operations in recent years. The sale of its Argentine business to Grupo Financiero Galicia for USD 550 million signifies another step in this strategic shift. However, this move is projected to result in a substantial loss of USD 1 billion in the first quarter of this year for HSBC, attributed to factors such as hyperinflation and foreign currency translation.

The sale transaction also entails acknowledging losses of USD 4.9 billion from historical currency translation reserves over the next 12 months. These losses stem from translating the financial performance of HSBC Argentina, denominated in pesos, onto HSBC's overall balance sheet, which is denominated in US dollars. The cumulative translation of the Argentine peso-denominated book value has led to significant reserve losses over the years, amounting to USD 1.8 billion in 2023 alone.

Despite the slated sale, the exact losses remain subject to change due to the dynamic nature of exchange rates. HSBC's Chief Executive Officer, Noel Quinn, expressed satisfaction with the agreement, highlighting it as a crucial step in executing the bank's strategy. Quinn emphasized the transaction's role in enabling HSBC to concentrate its resources on higher-value opportunities within its international network, while Grupo Financiero Galicia is better positioned to nurture and expand the Argentine business given its domestic focus and reduced earnings volatility in US dollars.