HSBC agrees new terms for stalled sale of French banking unit

HSBC has struck new terms for the long-delayed sale of its French retail banking division under which US private equity firm Cerberus’s My Money Group will inject more capital into the business and HSBC will retain billions of dollars of loans initially slated to be part of the deal.

The sale, agreed for the nominal amount of €1 in June 2021 as part of HSBC’s strategy to focus more on its Asian operations, had been in doubt since April when HSBC said a series of “significant, unexpected interest rate rises” had increased the amount My Money Group would need to inject to satisfy regulators.

HSBC said on Wednesday that after changes to the agreement, the indirect shareholder of My Money Group would inject €225mn of capital when the transaction closes, which is expected on January 1 2024.

HSBC will also retain €7bn of home and other loans originally slated to be part of the sale and which it may consider selling at a later date.

As part of the deal HSBC will also invest up to €407mn in My Money Group’s holding company in return for a profit-sharing agreement of up to 1.25 times the amount invested.

The latest changes underline how the reversal of a long period of ultra-low interest rates is leading to the revaluation of transactions. 

The French sale is part of HSBC’s strategy to focus on its profitable Asian operations while cutting costs and selling off operations in Europe and North America.

The lender has been under mounting pressure from its largest shareholder Ping An, which has argued HSBC should split off its valuable Asian operations to help bolster its sub-par market valuation, although its proposals failed to win the support of investors at the bank’s recent annual meeting.

HSBC said it would take a cumulative pre-tax loss on the sale of up to $2.7bn, of which it expects to recognise up to $2.2bn during the second half of 2023.

The bank said on Wednesday that the net asset value of the business to be transferred would be set by the prevailing interest rates at the closing date of the deal, and would be capped at €1.72bn. HSBC has also struck a long-term agreement to license the Credit Commercial De France brand to the buyer. 

When it agreed the initial deal in 2021, HSBC said it was prepared to take a pre-tax loss of roughly $2.3bn alongside a $700mn charge relating to impairment of goodwill to offload its French retail business, which had lost $500mn in the previous two years.