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HSBC has reached revised terms to sell its French retail business to Cerberus Capital Management-backed My Money Group after the lender said earlier this year that a sharp rise in interest rates in France had made the deal "less certain".
The revised terms will see HSBC's European business, in part, retain a portfolio of €7 billion (US$7.6 billion) in home and other loans originally expected to be transferred as part of the transaction. Those loans will be serviced by My Money Group post-closing and HSBC can pursue sale opportunities at an appropriate time.
HSBC is expected take an estimated pre-tax loss of as much as US$2.7 billion on the transaction, with a pre-tax loss of US$2.2 billion expected to be recognised in the second half of this year when the business is reclassified as held for sale. The final loss will be determined by prevailing interest rates.
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"The board of directors of HSBC Holdings believes the terms of the transaction (as varied by the potential changes) remain fair and reasonable and in the interests of shareholders as a whole," the London-based bank said in a stock exchange filing.
HSBC first announced the sale of its French retail banking business in June 2021 as part of CEO Noel Quinn's plans to streamline the bank's operations and shift capital from underperforming businesses in the West to faster-growing markets in Asia.
However, HSBC, the largest of Hong Kong's currency-issuing lenders, warned in April that the deal was in jeopardy after an unexpected rise in interest rates since the transaction was agreed, had "significantly increased" the capital requirements for the buyers at closing.
Following the revised agreement, HSBC said the net asset value of the business will be set by reference to the prevailing mortgage interest rate and the 10-year mid-swap rate at closing, capped at €1.72 billion.
Depending on the prevailing rates, HSBC's European arm would receive a profit participation interest of up to €509 million in exchange for investing capital in the holding company of My Money Group.
HSBC CEO Noel Quinn speaks during the Global Financial Leaders' Investment Summit at Four Seasons Hotel in Central in November 2022. Photo: Sam Tsang alt=HSBC CEO Noel Quinn speaks during the Global Financial Leaders' Investment Summit at Four Seasons Hotel in Central in November 2022. Photo: Sam Tsang>