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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Categorized | Banks, Financial

HSBC nears $4bn sale of Brazilian arm

Posted on July 31, 2015

HSBC may now think twice before moving their operations to Asia©AP

HSBC may now think twice before moving their operations to Asia

HSBC is nearing a sale of its Brazilian subsidiary to local rival Bradesco for close to $4bn and hopes to announce the transaction with its results on Monday, said people familiar with the talks.

If the deal is agreed in time. it would allow HSBC to demonstrate early progress on some targets set in its June strategic update. At that time, it promised to shed 50,000 jobs, sell its Brazilian and Turkish units and shift resources to more promising Asian markets

    Two people familiar with the matter said Bradesco, the second-largest private sector bank in Brazil, was in exclusive talks with HSBC about buying its operations in the country for close to its book value of about $4bn. The talks with Bradesco come after an auction run by Goldman Sachs that attracted several bidders including Spain’s Santander.

    HSBC is also in exclusive talks to sell its Turkish operations to ING of the Netherlands for $750m-$1bn. However, one person close to the talks said they may not be completed in time to be announced on Monday.

    Together the disposals represent a further retrenchment in the global ambitions of a group that once branded itself “the world’s local bank” and still has 266,000 employees in 73 countries and territories. HSBC, Bradesco and ING declined to comment.

    Some investors are growing frustrated with HSBC after it failed to hit many of the targets set in a previous strategic plan, including those for cost efficiency and return on equity. There has been speculation that Douglas Flint will next year announce plans to step down as chairman and could be replaced by an outsider for the first time.

    The bank expanded into Brazil and Turkey with bold acquisitions during the late 1990s as part of a global expansion drive. But it failed to make a success in either country as it lacked the scale to compete and racked up losses in both markets.

    Last year, HSBC made a loss of $247m in Brazil, where it is the seventh-largest bank by assets with more than 800 branches.

    If Bradesco is successful, it would allow the bank to close the gap with its bigger local rival Itaú Unibanco. It would also be a blow for Santander, which saw the auction as an opportunity to gain the scale in Brazil that it has been struggling to achieve since buying Banco Banespa in 1998.

    Analysts expect HSBC to report a 1 per cent increase in interim pre-tax profits to $12.5bn on Monday. Operating costs are forecast to rise slightly in the first half to $18.5bn, while revenues are expected to rise slightly to $31.3bn.

    One investor said the sale of the Brazil and Turkey businesses were “not big enough to move the needle” for a group with $2.5tn of assets and predicted that the focus would be on the progress of cost-cutting and the performance of its investment bank.

    Shares in HSBC have fallen more than 5 per cent since its strategic update in June, underperforming most rivals and the main FTSE 100 market.

    At the time Stuart Gulliver, chief executive, promised a “pivot to Asia” strategy, shrinking poorly performing operations in Europe and the Americas while redeploying resources to more promising markets, in particular the Pearl River Delta industrialised region of southern China.

    The sale of its operations in Brazil and Turkey will reduce staff numbers by 25,000. The bank plans to cut a similar number of jobs elsewhere, partly by shutting 12 per cent of branches in its main markets and shifting more operations to a digital model.