HSBC reaches revised terms for sale of its French retail banking business

HSBC to retain US$7.6 billion in loans as part of revised transaction; expects to take pre-tax loss of up to US$2.7 billion on sale
Lender warned in April that completion of transaction was ‘less certain’ following interest rate increases

Banking & finance

Chad Brayin London

Published: 11:52pm, 14 Jun 2023

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HSBC has reached revised terms to sell its French retail business to Cerberus Capital Management-backed My Money Group after the lender said earlier this year that a sharp rise in interest rates in France had made the deal “less certain”.

The revised terms will see HSBC’s European business, in part, retain a portfolio of €7 billion (US$7.6 billion) in home and other loans originally expected to be transferred as part of the transaction. Those loans will be serviced by My Money Group post-closing and HSBC can pursue sale opportunities at an appropriate time.

HSBC is expected take an estimated pre-tax loss of as much as US$2.7 billion on the transaction, with a pre-tax loss of US$2.2 billion expected to be recognised in the second half of this year when the business is reclassified as held for sale. The final loss will be determined by prevailing interest rates.

“The board of directors of HSBC Holdings believes the terms of the transaction (as varied by the potential changes) remain fair and reasonable and in the interests of shareholders as a whole,” the London-based bank said in a stock exchange filing.

HSBC’s sale of French retail business in jeopardy

HSBC first announced the sale of its French retail banking business in June 2021 as part of CEO Noel Quinn’s plans to streamline the bank’s operations and shift capital from underperforming businesses in the West to faster-growing markets in Asia.

However, HSBC, the largest of Hong Kong’s currency-issuing lenders, warned in April that the deal was in jeopardy after an unexpected rise in interest rates since the transaction was agreed, had “significantly increased” the capital requirements for the buyers at closing.

Following the revised agreement, HSBC said the net asset value of the business will be set by reference to the prevailing mortgage interest rate and the 10-year mid-swap rate at closing, capped at €1.72 billion.

Depending on the prevailing rates, HSBC’s European arm would receive a profit participation interest of up to €509 million in exchange for investing capital in the holding company of My Money Group.

HSBC CEO Noel Quinn speaks during the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Central in November 2022. Photo: Sam Tsang

The revised memorandum of understanding includes a long-term agreement for HSBC’s European arm to license the Crédit Commercial de France brand to the purchaser.

As part of the revised deal, funds managed by Cerberus will also inject €225 million of additional capital into My Money Group ahead of closing.

The revised deal is expected to be completed by January 2024 and is subject to regulatory approval.

The sale of the French business is one of several moves by Quinn to reshape HSBC and double down on future growth in Asia in recent years.

What next for HSBC after stopping Ping An from carving up top Hong Kong lender?

Under his leadership, the bank has exited its mass market retail business in the United States and agreed to sell its businesses in Canada, Greece and Russia.

The bank agreed to buy the UK arm of collapsed Silicon Valley Bank in March and has reportedly agreed to buy out its partner in its mainland China fund management joint venture, the latest move to consolidate control of its onshore businesses.

The turmoil over the French sale also came amid pressure from Ping An Insurance Group, its biggest shareholder, and other frustrated investors to consider dramatic strategic changes, including potentially spinning off its Asian arm.

HSBC’s management prevailed in a contentious shareholder vote at its annual meeting in Birmingham, England, in May after a minority group of shareholders had pushed to spin off the Asia business.

The bank generates the bulk of its pre-tax profit in Asia, but its management has argued its international network of connecting businesses between East and West is core to its strategy.

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