HSBC warns rate rises may scupper sale of French retail unit to Cerberus

HSBC has warned that the sale of its French retail bank to Cerberus for a token €1 is now in doubt, after a series of “significant, unexpected interest rate rises” increased the amount of capital the US private equity group will have to inject.

Cerberus “has advised us that they consider that they will be unable to obtain regulatory approval without amending the previously agreed transaction terms”, the bank said in a statement on Friday. “The parties are continuing discussions. If the transaction does proceed, it is expected that closing will be delayed.”

The deal, signed in June 2021, would have seen HSBC’s 244 branches and 800,000 customers sold to Cerberus’s subsidiary MyMoneyGroup for a nominal amount. It was part of HSBC’s drive to increase its focus and asset allocation to its most profitable markets in Asia and cut ties with lossmaking businesses in Europe and the US.

To exit the retail network, which had lost $500mn in the two years prior to the agreement, it was prepared to take a pre-tax loss of roughly $2.3bn alongside a $700mn charge relating to impairment of goodwill.

As part of the sale, HSBC had agreed to ensure the business had a net asset value of $2bn when handed over — a commitment that could have required HSBC to inject more cash.

If the sale collapses it will be a blow to HSBC, which has since come under severe pressure from its largest investor Ping An. The Chinese insurer is running an activist campaign to split the sprawling bank into east and west units to improve profitability and help it navigate increasingly fraught US-China geopolitical tensions.

The jeopardised deal with Cerberus is just the latest example of how a series of sharp rate rises around the world, after more than a decade of easy monetary policy, have caused dislocations in the global financial system. Most notably, Silicon Valley Bank collapsed after a strategy to boost profitability by buying riskier assets exposed it to huge losses.

HSBC said that changes to the “related fair value accounting treatment on acquisition” caused by rate rises “will significantly increase the amount of capital required”.

The London-based lender added that it “remains committed to pursuing the sale providing appropriate terms can be agreed”, but that if this does not happen by the end of May next year the agreement will be terminated. This deadline can be extended to November under certain circumstances.

Assuming the deal with Cerberus had closed, MyMoneyGroup had planned to resurrect the Crédit Commercial de France brand, which HSBC brought for €11.1bn in 2000. At the time HSBC took control, CCF boasted high-end customers as well as a handful of regional banks. Over the past two decades, HSBC sold off CCF’s regional banks, for €2.1bn, its headquarters on the Champs-Elysées for €400mn and folded some of its operations into those of the wider group.