By Margot Patrick and Julie Steinberg
LONDON-- HSBC Holdings PLC retreated back to its Asian roots
Monday with an agreement to sell its Brazilian business for $5.2
billion, in the latest dismantling of HSBC's former ambition to be
"the world's local bank."
HSBC said it has entered an all-cash deal to sell the Brazilian
unit to Banco Bradesco SA, leaving it with a rump Mexican business
in the region that will increasingly be focused around North
American trade. The bank in a June strategy update said it would
pivot its business back to Asia, where its Hongkong and Shanghai
Bank has been operating for 150 years.
The announcement came as HSBC reported a 4% fall in
second-quarter net profit to $4.36 billion from $4.54 billion,
reflecting higher operating costs and tax charges in the period.
But a rise in revenue and lower bad loans pushed pretax profit
higher in the three months to June 30, to $6.57 billion from $5.56
billion.
James Chappell, an analyst at Berenberg Bank, said the results
are "a reassuring starting point for the revised strategy with
results slightly better than consensus."
Chief Executive Stuart Gulliver told analysts that tapping fresh
growth opportunities in Asia is a priority but won't be the
"exclusive focus" of where it chooses to reinvest capital being
freed up by reducing activities elsewhere in the world. He said the
bank expects about half of the capital backing $290 billion in risk
weighted assets marked for reduction will be channeled to Asia,
with the rest dispersed among Europe, the Middle East and North
Africa, North America and Mexico.
In HSBC's Global Banking & Markets division, second-quarter
pretax profit rose to $5.02 billion from $4.63 billion as
volatility in Asian equities and currency markets spurred client
trading. Amid an industry debate about whether European banks are
scaling back too far in investment banking and letting U.S. rivals
corner the business, Mr. Gulliver said he's happy with the unit and
its recent performance but that its risk-weighted assets still need
to come down.
European banks have been abandoning international businesses and
parts of their investment banks in an ongoing shakeout from higher
capital charges. While HSBC is pulling back from the number of
countries it operates in to 72 from 87 in 2011, Mr. Gulliver said
"nothing has changed about the fact that we believe passionately in
being a global universal bank, which means diversified by business
line and diversified by geography."
Selling Brazil will result in a $37 billion reduction in
risk-weighted assets. The bank said it would keep a presence in
Brazil to cater to large corporate clients.
HSBC's bank in Brazil is the seventh-largest in the country with
a 2.7% market share of banking assets. It made a $191 million
pretax profit in the first half, after a $247 million full-year
pretax loss last year. The unit employs around 21,000 people.
Mr. Gulliver kicked off an effort four years ago to pull HSBC
out of countries where it lacked scale or didn't make enough money.
He stepped up the program in June with a plan to cut 50,000 jobs
and shave up to $5 billion from its annual costs by 2017. The bank
on Monday said it would incur one-time costs associated with the
plan in the second half of this year, with the bulk to register in
2016.
HSBC's regulatory woes have often overshadowed its strategy,
though, as a host of regulators and authorities globally have found
weaknesses in HSBC's anti-money-laundering controls and the
governance at some of its units. Fines, settlements and systems
cleanups have cost the bank billions of dollars in the past few
years and have weighed on returns.
On Monday, it set aside a further $1.14 billion for legal
settlements and provisions.
The bank, which is also close to selling its business in Turkey,
said it would continue reviewing the possibility of moving its
headquarters out of London. HSBC has been considering relocating to
Asia, in part, executives have said, to reduce the impact of a U.K.
tax on bank balance sheets and avoid a European clampdown on
bonuses. In what was seen as an effort to keep HSBC in London, the
U.K. government said last month it would start phasing out its tax
on banks' global assets.
The headquarters review is expected to be concluded by the end
of the year.
HSBC emerged from the financial crisis of 2008 in better health
than many of its rivals. But tougher banking rules and
investigations into its anti-money-laundering controls highlighted
the risks of an earlier strategy of rapid growth through
acquisitions. It debuted the advertising slogan "the world's local
bank" in 2002 before phasing it out in recent years to reflect a
narrowing of its ambitions.
Anjie Zheng
contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com and Julie
Steinberg at julie.steinberg@wsj.com
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