HSBC Latin America has announced a binding agreement to divest its operations in Argentina to Grupo Financiero Galicia. Under the terms of the agreement, Galicia will acquire the entirety of HSBC Argentina’s business, spanning banking, asset management, and insurance. The deal also includes the acquisition of $100 million in subordinated debt issued by HSBC Argentina and held by other HSBC entities. The total consideration for the acquisition amounts to $550 million, subject to adjustments based on the performance of the business and fair value gains or losses on HSBC Argentina’s securities portfolios between December 31, 2023, and closing.
Breaking News: HSBC Latin America Enters Binding Agreement
The transaction will see HSBC receive the purchase consideration through a combination of cash, loan notes, and Galicia’s American Depositary Receipts (ADRs), with ADRs making up approximately half of the consideration received, representing less than a 10% economic interest in Galicia.
Financially, HSBC anticipates various impacts resulting from the transaction. It expects to incur a pre-tax loss of $1.0 billion upon reclassifying the business as held for sale in the first quarter of 2024. Additionally, there will be an insignificant impact on the Group’s Common Equity Tier 1 (CET1) ratio at closing, with an initial reduction of around 0.1 percentage points in the first quarter of 2024. Furthermore, it expects to recognize approximately $4.9 billion in historical foreign currency translation reserve losses on closing, as these losses have accumulated over the years due to currency fluctuations in Argentina.
Despite these financial adjustments, HSBC reaffirms its commitment to its dividend payout ratio target of 50% for 2024, excluding notable items and related impacts. Moreover, the Group continues to target a return on average tangible equity in the mid-teens for 2024, excluding the impact of notable items.
The completion of the transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to be finalized within the next 12 months. This strategic move underscores HSBC’s ongoing efforts to optimize its portfolio and focus on core markets.
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