HSBC has agreed to sell its Brazilian unit for around $5.2billion to Bradesco, sporting a 1.8x book multiple, much better than the 1.2x book value expected by analysts. This sale, by what is known as the world's local bank, represents a retreat from the world's second biggest emerging market economy after disappointing operating performance. As reported in the Weekend's FT, this sale, when combined with the recent sale of HSBC's operations in Turkey, will result in a headcount reduction of almost 25,000 staff and effectively un-ravels a series of acquisitions made in the 1990's to build out the bank's global footprint, which while strategic was relatively late in these competitive markets.
The sale also reduces RWAs at HSBC by almost $40billion against a target set recently by the bank of $290billion. Expect to see more of this type of strategic retreat by European banks from far flung and competitive markets as they come to grips with poor performing operations, the need to meet capital targets, and plans to re-allocate capital towards activities consistent with their risk appetite.
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