HSBC’s French Retail Unit Sale ‘Less Certain’ on Rate Rises

HSBC Holdings Plc said rising interest rates have put a deal to sell its French retail banking business into question, a potential blow to its plans to streamline its global operations.

(Bloomberg) — HSBC Holdings Plc said rising interest rates have put a deal to sell its French retail banking business into question, a potential blow to its plans to streamline its global operations.

The UK lender said in a statement Friday that “significant, unexpected interest rate rises in France” since it signed a memorandum of understanding with Cerberus’s My Money Bank in 2021 have increased the capital requirements on the buyers, potentially putting the transaction in doubt.

“The Purchaser Group has advised us that they consider that they will be unable to obtain regulatory approval without amending the previously agreed transaction terms,” HSBC said. “The parties are continuing discussions. If the Transaction does proceed, it is expected that closing will be delayed.”

As a result, HSBC said it would no longer classify the unit as held for sale and reverse a previously recognized $2 billion impairment. The change will also boost its CET1 ratio, a key measure of its financial strength, by about 25 basis points. 

The lender said if the sale doesn’t proceed, there would be “no material impact on guidance or performance of HSBC.” 

Still, it would leave the bank lumbered with an unprofitable unit that it spent years trying to shift as part of an attempt to shed non-core assets. The sale was part of HSBC’s worldwide overhaul that aims to reduce gross risk-weighted assets, cut thousands of jobs and shift its investment focus towards Asia.

Read More: HSBC Sees $3 Billion Hit on French Retail Deal to Cerberus

“This announcement is very surprising, although the interest-rate risk on the deal was known,” said Jerome Legras, managing partner at Axiom Alternative Investments. “The main question now is whether the banks will incur any breakage costs if the deal doesn’t go through, as IT integration work was already under way.”

HSBC’s shares were up 3% at 4:08 p.m. in London, in line with other lenders as US bank earnings season began. Cerberus didn’t immediately respond to a request for comment.

Funding Costs

Funding costs for banks have risen in the past year as central banks around the world raised rates sharply. HSBC’s French unit has a sizeable mortgage book.

HSBC’s French retail business stems from the bank’s acquisition of Credit Commercial de France in 2000 for €11 billion. The bank said at the time the MOU with Cerberus was signed that it expected a $2.3 billion pretax loss on the long-awaited disposal as well as a $700 million goodwill impairment if it completes.

Since then, the British bank has continued to shrink some of its other operations in France. It is planning to cut as many as 230 jobs this year in the unit catering to small- and medium-sized companies. Elsewhere it agreed to sell its Canadian unit for about $10 billion in cash.

Read More: HSBC Rises in Hong Kong on Dividend Bets After Canada Sale

HSBC said in the statement that if the transaction isn’t completed by May 31, 2024, the agreement with Cerberus will terminate automatically, although that date can be extended to Nov. 30, 2024 under certain circumstances. It remains committed to pursuing the sale “providing appropriate terms can be agreed” 

The British lender, which started to prepare the sale of its unprofitable French retail bank in September 2019, struggled to find a buyer given the complexity of the deal that included questions around financing the unit’s capital needs. The process saw other lenders such as Societe Generale SA and La Banque Postale SA show interest before walking away. 

Cerberus intends to combine the business with its existing consumer finance unit My Money Bank, which it acquired in 2017 from GE, under the returning brand of Credit Commercial de France.

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