09 April 2024 , 10:47
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Banking giant HSBC is bracing for a billion-dollar loss following its decision to offload its Argentinian business, which has been beleaguered by an erratic exchange rate in recent years.
HSBC announced it's selling HSBC Argentina, boasting over 100 branches and approximately 3,100 employees, to Grupo Financiero Galicia, a leading private financial group in the South American nation. This move follows years of grappling with the highly unstable Argentinian currency.
Half a decade ago, £1 would fetch you 56 pesos. However, on Tuesday, £1 was equivalent to nearly 1,100 pesos. HSBC revealed that the sale, priced at $550million (£435 million), will result in a $1billion (£791 million) loss in its first-quarter results this year.
The magnitude of the loss could fluctuate due to several factors, including "associated hyperinflation and foreign currency translation", HSBC said on Tuesday. Over the next 12 months, the business will also acknowledge $4.9billion (£3.9 billion) in losses from historical currency translation reserves.
This pertains to the loss incurred when translating the financial performance of the Argentinian business, denominated in pesos, onto HSBC's overall balance sheet, calculated in US dollars. "These reserve losses have accumulated over many years and arise from the cumulative translation of the Argentinian peso-denominated book value of HSBC Argentina into US dollars," explained HSBC.
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In 2023, HSBC's losses swelled by a staggering $1.8billion (£1.4 billion), the banking giant revealed. The total loss figure is set to fluctuate further as the sale process unfolds, with exchange rates expected to continue changing.
HSBC's chief executive Noel Quinn said: "We are pleased to agree the sale of HSBC Argentina. This transaction is another important step in the execution of our strategy and enables us to focus our resources on higher-value opportunities across our international network."
Mr Quinn added: "HSBC Argentina is largely a domestically-focused business, with limited connectivity to the rest of our international network. Furthermore, given its size, it also generates substantial earnings volatility for the group when its results are translated into US dollars. Galicia is better placed to invest in and grow the business."