TIDMHSBA
RNS Number : 4190C
HSBC Holdings PLC
18 June 2021
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Hong Kong Stock Code: 5
18 June 2021
HSBC HOLDINGS PLC
HSBC ANNOUNCES SALE
OF RETAIL BANKING BUSINESS IN FRANCE
HSBC Continental Europe ('HBCE') has today signed a Memorandum
of Understanding ('MOU') regarding the potential sale
of HBCE's retail banking business in France.
The potential sale includes: HBCE's French retail banking
business; the Crédit Commercial de France brand;
and, subject to the satisfaction of relevant conditions,
HBCE's 100% ownership interest in HSBC SFH (France) and
its 3% ownership interest in Crédit Logement (together,
the 'Business'). The potential sale is structured such
that it may proceed even if the relevant conditions to
transfer HSBC SFH and/or the 3% ownership interest in
Crédit Logement are not satisfied. The potential
sale would not include HBCE's life insurance or asset
management manufacturing businesses. HBCE, through its
subsidiaries, would enter into distribution agreements
with the Purchaser for insurance and asset management
products.
The Business consists of a network of 244 retail branches,
serving 800,000 customers at 31 December 2020. At 31
December 2020, the Business had customer loans balance
of $26.2bn[1], customer deposits balance of $23.1bn and
credit risk-weighted assets ('RWAs') of $7.1bn. It is
anticipated that approximately 3,900 HBCE employees would
transfer with the Business in accordance with relevant
legislation.
Noel Quinn, Group Chief Executive, said: "The signing
of an MOU for the potential sale of our French retail
banking business represents a significant step in progressing
the actions we announced during our strategic update
earlier this year. It will enable us to dramatically
simplify our business in Continental Europe and allow
us to accelerate the transformation of our European wholesale
banking franchise. We are committed to remaining as a
leading international wholesale bank in Continental Europe,
capitalising on our global network and serving our multinational
customers both inbound and outbound."
The MOU includes details of the parties' information
and consultation processes of their respective employees'
works councils, which will commence shortly. If, following
the outcome of these processes, the parties were to decide
to proceed with the potential sale, they would enter
into a governing transaction agreement setting out further
terms for implementation, including regulatory approvals
and other conditions.
The potential sale would be expected to complete in the
first half of 2023. Financial impacts of the potential
sale on the HSBC Group (consolidated basis) are currently
expected to be[2]:
* An estimated pre-tax loss on sale of c.$2.3bn,
together with an additional $0.7bn impairment of
goodwill. There would be no immediate tax benefit
recognised in respect of the sale loss nor
impairment. The vast majority of the estimated sales
loss and impairment is expected to be recognised upon
the classification of the Business as held for sale
for accounting purposes, currently anticipated to be
in 2022, with any remaining elements recognised by
completion;
* A reduction in the consolidated common equity tier 1
ratio of approximately 15bps (based on HSBC's Group
RWAs at 31 December 2020), driven by the estimated
loss on sale partially offset by the reduction in
RWAs upon completion; and
* A reduction in HSBC's Group tangible net asset value
(consisting of the estimated loss excluding
intangibles impairments) of an estimated $2.2bn upon
completion (based on the current estimate of the
financial impact).
None of the current unsecured or subordinated debt issued
by HBCE will transfer to the Purchaser as part of the
Potential Transaction
The Potential Transaction
Following a strategic review of HSBC's retail banking activities
in France, HBCE has today signed an MOU with Promontoria MMB SAS
('My Money Group'), its subsidiary Banque des Caraïbes SA (the
'Purchaser') and My Money Bank ('MMB'), regarding the potential
sale of HBCE's retail banking business in France. My Money Group,
MMB and the Purchaser are under the control, directly or
indirectly, of funds and accounts managed or advised by Cerberus
Capital Management L.P.
The potential sale includes: HBCE's French retail banking
business; the Crédit Commercial de France ('CCF') brand; and,
subject to the satisfaction of relevant conditions, HBCE's 100%
ownership interest in HSBC SFH (France) ('HSFH') and its 3%
ownership interest in Crédit Logement (together, the 'Business')
(the 'Potential Transaction').
The Business consists of a network of 244 retail branches,
customer loans and deposits balances associated with its retail
banking activities in France, and certain other assets and
liabilities. If the Potential Transaction were to proceed, the
Purchaser intends to operate the Business under the CCF brand in
mainland France.
It is anticipated that approximately 3,900 HBCE employees would
transfer with the Business in accordance with relevant
legislation.
HBCE through its subsidiaries HSBC Assurances Vie (France), HSBC
Global Asset Management (France) and HSBC REIM (France) would
continue its existing insurance and asset management activities,
and the Potential Transaction would therefore involve such entities
respectively entering into distribution agreements with the
Purchaser for insurance and asset management products.
The signing of the MOU has been approved by the boards of
directors of HBCE, My Money Group and the Purchaser.
The MOU records the status of the negotiations between the
parties and sets out the information and consultation process
between HBCE and the Purchaser with their respective works
councils, which will commence shortly. It also contains exclusivity
commitments entered into by the parties.
The Potential Transaction would represent a significant step in
HSBC's strategic goal to focus on its strengths and reallocate
capital to invest in areas of growth.
HSBC Europe's strategy (incorporating HSBC Bank plc, our UK
non-ringfenced bank, and Continental Europe operations) is to
connect trade and capital flows between the west and the east,
supporting delivery of our growth ambitions in the Group's
distinctive Asian and Middle Eastern businesses. The potential sale
of our French retail arm and the buyout of the minority shareholder
in our German business completed earlier this year would enable us
to continue to focus on our strengths, consolidate our operating
model, simplify the business, release capital and raise returns.
Our refocused business would enable wholesale clients to access 21
markets and, after excluding the French retail business, generated
more than $7bn of revenues from around $160bn of RWAs in 2020. HSBC
Europe is the largest contributor in the Group of cross-border
client revenues into Asia and the Middle East and is a material
provider of services to clients in the East that wish to access
European capital markets.
Paris would remain the hub for HSBC in Continental Europe,
enabling us to serve multinationals globally with our international
network and to support cross-border banking flows aligned to major
trade and capital corridors. Asset Management and Insurance
customers would also continue to be supported through the
respective businesses which will remain part of HBCE.
Financial terms
The terms of the Potential Transaction contemplate HBCE
transferring the Business to the Purchaser with a net asset value
of c.$2.0bn, subject to adjustment (upwards or downwards) in
certain circumstances, for a consideration of EUR1 ($1.22).
Any required increase to the net asset value of the Business to
achieve the net asset value of $2.0bn would be satisfied by the
inclusion of additional cash within the scope of the Business
transferred. In the event that the net asset value exceeds this
target amount, the consideration would not be adjusted. Under the
proposed terms of the Potential Transaction, HBCE and the Purchaser
have agreed to take certain steps to manage the net asset position
of the Business to be delivered at closing of the Potential
Transaction ('Closing'). This includes HBCE taking steps for HSFH
(or a similar vehicle) to issue covered bonds (up to $2.4bn of
which may be self-financed by HBCE). The net asset position can be
further reduced by up to $1.9bn via arrangements that would result
in related payments due from the Purchaser to HBCE taking place
within three months from Closing. In addition, HBCE would be
entitled to self-finance further secured funding to the Business in
order to manage the net asset position. If the net asset value of
the transferred Business at Closing (calculated on the basis that
certain actions have been taken by HBCE to manage the net asset
position) is expected to exceed the target,
HBCE would have the right to terminate the Potential Transaction
(and therefore would be able to avoid an increased loss on
sale).
The Potential Transaction is structured such that the parties
may proceed to Closing even if the relevant conditions to transfer
HSFH and/or the 3% ownership interest in Crédit Logement are not
satisfied. In these circumstances the parties would put in place
arrangements replicating for HBCE the economics that would apply
had the relevant conditions been satisfied. If the parties were to
proceed to Closing without the condition to transfer HSFH being
satisfied, there would be a deferred transfer to the Purchaser of
certain home loans that would otherwise fall within the scope of
the Potential Transaction. Similarly, if the steps the parties have
agreed to take to manage the net asset position of the Business are
implemented where the condition to transfer HSFH is not satisfied,
the amount of home loans that would initially not fall within the
scope of the Potential Transaction may be increased. Any deferred
transfer of home loans would be on the basis of them transferring
at book value, subject to an adjustment such that the Purchaser
should have the economic exposure to the ownership of such loans
from Closing.
The Potential Transaction would involve the transfer to the
Purchaser of HBCE's internal models for calculation of credit RWAs
of the Business based on the internal ratings-based approach. If
the Purchaser obtains regulatory approval to calculate the credit
RWAs of the Business using ratings systems and internal models that
are based on or derived from these HBCE internal models within five
years of Closing, additional consideration will be payable by the
Purchaser to HBCE (to be calculated by reference to the resulting
reduction in capital requirement associated with the Business).
This additional consideration is unlikely to exceed $60m.
The Board of Directors of HSBC Holdings plc believes the terms
of the Potential Transaction are fair and reasonable and in the
interests of shareholders as a whole. The financial terms and
aggregate contemplated consideration of the Potential Transaction
were arrived at after arm's length negotiations and having taken
into account the value of the component elements of the Business
and the reasons for the sale set out below.
Financial impact of the Potential Transaction
The sale would generate an estimated pre-tax loss (calculated on
an IFRS basis) for HSBC Group of c.$2.3bn, together with an
additional $0.7bn impairment of goodwill[3]. There would be no
immediate tax benefit recognised in respect of the sale loss nor
impairment. The vast majority of the estimated sales loss and
impairment is expected to be recognised upon the classification of
the Business as held for sale for accounting purposes, currently
anticipated to be in 2022, with any remaining elements recognised
by completion.
Estimate Expected
timing of
P&L impact
Estimated transferring net asset ($2.0bn)
value
------------- ------------
Purchase price expected to be payable
on Closing EUR1 ($1.22)
------------- ------------
Estimated resulting pre-tax loss ($2.0bn) 2022
------------- ------------
Other estimated P&L transaction ($0.3bn) 2021-2023
impact (including transaction costs,
write-offs and recycling reserves)
------------- ------------
Estimated total pre-tax loss on ($2.3bn)
sale for HSBC Group
------------- ------------
Goodwill impairment by HSBC Group ($0.7bn) 2022
------------- ------------
Expected financial impacts and timings are based on 31 December
2020 financial position of the Business and the anticipated date of
satisfying the held for sale accounting classification
requirements, both may be subject to change.
It is estimated that the sale of the Business would reduce
credit RWAs at an HSBC consolidated level under UK regulatory rules
by up to $7.1bn based on 31 December 2020 figures. The HSBC Group
has a strong capital position, with a consolidated common equity
tier 1 capital ratio of 15.9% as at 31 December 2020. The pre-tax
loss on sale would be partially offset by the reduction in credit
RWAs, and would be expected to lead to an estimated decrease in the
HSBC Group consolidated common equity tier 1 capital ratio of
approximately 15 basis points (based on HSBC Group RWAs at 31
December 2020)[4]. A reduction in the HSBC Group's tangible net
asset value (consisting of the estimated loss excluding intangibles
impairments) of an estimated $2.2bn would be expected upon Closing
(based on the current estimate of the financial impact of the
Potential Transaction). None of the current unsecured or
subordinated debt issued by HBCE will transfer to the Purchaser as
part of the Potential Transaction.
The financial impact of the Potential Transaction set out above
is calculated on the assumption that HSFH and the 3% ownership
interest in Crédit Logement are within the scope of the Potential
Transaction at Closing. If HSFH does not transfer at Closing, this
would result in an initial lower reduction in RWAs of HBCE (and of
HSBC at a consolidated level).
Given the financial terms of the Potential Transaction, it is
not expected that the Potential Transaction will result in any net
proceeds of sale for the HSBC Group.
On Closing, the profit and loss and the assets and liabilities
of the Business will no longer be consolidated into the HSBC
Group's consolidated financial statements and HSFH, if the required
consent for its transfer is obtained, will cease to be a subsidiary
of the HSBC Group.
HSBC does not anticipate that the Potential Transaction will
lead to a change in the current issuer credit ratings of HBCE.
Reasons for the Potential Transaction
In the second half of 2019, HSBC commenced a strategic review of
the Business. The strategic review has resulted in the exploration
of the Potential Transaction as HSBC considered that continuing to
operate a relatively subscale retail network in France was not
aligned with its wider global strategy. The implementation of the
Potential Transaction would be an important step towards optimising
HSBC's operating footprint. France remains a key market for HSBC,
and the Potential Transaction would facilitate HSBC's focus on
further developing its wholesale business in Continental
Europe.
Indicative timetable, next steps and conditions
As noted above, the MoU sets out the information and
consultation process by the parties of their respective employees'
works councils and contains exclusivity commitments by both
parties.
The information and consultation processes will commence
shortly. If, following the outcome of these processes, the parties
were to decide to proceed with the Potential Transaction, a
governing transaction agreement would be entered into between HBCE,
the Purchaser and My Money Group setting out the further terms for
implementation of the Potential Transaction.
The Potential Transaction would be subject to clearance from
relevant financial, governmental and regulatory approvals.
Approvals would also be required in connection with the transfer of
the interests in HSFH and Crédit Logement. However as noted above,
the Potential Transaction would proceed even if these approvals
were not obtained.
The Potential Transaction would be expected to close in the
first half of 2023.
Further information
As at 31 December 2020, the value of the gross assets of the
Business was $28.9bn, including $26.2bn of customer loans balance.
The Business also has customer deposit balance of $23.1bn. The
Business under HBCE ownership generated $500m and $495m of
revenues, incurred $705m and $760m of operating costs, and
recognised a $1m net cost of risk reversal and $23m net cost of
risk charge, during the financial years ended 31 December 2019, and
2020, respectively. The loss before tax for the Business for the
financial years ended 31 December 2019 and 31 December 2020 was
$204m and $288m respectively. No loss after tax was recorded for
the Business, as tax is applied at the entity level.
HSBC Global Banking and Lazard are acting as financial advisors
to HSBC in connection with the Potential Transaction.
The Potential Transaction is being treated as a Class 2
transaction for the purposes of the UK Financial Conduct
Authority's Listing Rules and, in view of a cap on the overall
consideration for the Potential Transaction to be included in the
governing transaction agreement, as a disclosable transaction under
the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited (the 'Hong Kong Listing Rules').
To the best of the knowledge, information and belief of the
Directors of HSBC having made all reasonable enquiries, the
Purchaser and its ultimate beneficial owners are third parties
independent of HSBC and its connected persons (as defined under the
Hong Kong Listing Rules).
Miscellaneous
The Board of Directors of HSBC Holdings plc as at the date of
this announcement comprises: Mark Tucker*, Noel Quinn, James
Anthony Forese , Steven Guggenheimer , Irene Lee , José Antonio
Meade Kuribreña , Eileen K Murray , David Nish , Ewen Stevenson,
Jackson Tai and Pauline van der Meer Mohr .
* Non-executive Group Chairman
Independent non-executive Director
For and on behalf of
HSBC Holdings plc
Aileen Taylor
Group Company Secretary and Chief Governance Officer
Investor enquiries to:
Richard O'Connor +44 (0) 20 7991 6590 investorrelations@hsbc.com
Media enquiries to:
Heidi Ashley +44 (0) 20 7992 2045 heidi.ashley@hsbc.com
+44 7920 254057
Gillian James +44 (0) 20 7992 0516 gillian.james@hsbcib.com
+44 7584 404238
Notes to editors:
1. The abbreviations '$m' and '$bn' represent millions and
billions (thousands of millions) of US dollars, respectively.
2. HSBC Holdings plc
HSBC Holdings plc, the parent company of the HSBC Group, is
headquartered in London. HSBC serves customers worldwide from
offices in 64 countries and territories in our geographical
regions: Europe, Asia, North America, Latin America, and Middle
East and North Africa. With assets of $2,959bn at 31 March 2021,
HSBC is one of the world's largest banking and financial services
organisations.
3. HSBC Continental Europe
HSBC Continental Europe is a subsidiary of HSBC Holdings plc.
HSBC Continental Europe is headquartered in Paris. HSBC Continental
Europe includes, in addition to its banking activities in France,
the activities of 10 European branches (Belgium, Spain, Greece,
Ireland, Italy, Luxembourg, Netherlands, Poland, Czech Republic and
Sweden). HSBC Continental Europe's mission is to serve customers in
continental Europe for their needs worldwide and customers in other
Group countries for their needs in continental Europe.
4. HSBC SFH (France)
HSBC SFH (France) is a funding vehicle used by HBCE for the
issuance of covered bonds backed by mortgage loans issued by
HBCE.
5. Crédit Logement
Crédit Logement operates as a provider of mortgage loan
guarantees in the French market.
6. Banque des Caraibes
Banque des Caraibes ('BdC') is a universal bank regulated by the
ACPR, and is currently operating in the French Caribbean under the
My Money Group umbrella. BdC is ultimately controlled by funds and
accounts managed or advised by Cerberus Capital Management L.P. The
principal business of the Purchaser relates to retail and
commercial banking.
7. Promontoria MMB
Promontoria MMB is a financial holding company of My Money Group
and is regulated by the ACPR. It owns majority shares notably in
Banque des Caraïbes and My Money Bank .
8. My Money Bank
My Money Bank is a bank regulated by the ACPR and is currently
operating in mainland France under the My Money Group umbrella. MMB
is ultimately controlled by funds and accounts managed or advised
by Cerberus Capital Management L.P. The principal business of My
Money Bank relates to debt consolidation and commercial real
estate.
9. Cerberus Capital Management L.P.
Founded in 1992, Cerberus is a global leader in alternative
investing with approximately $55bn in assets across complementary
credit, private equity, and real estate strategies. Cerberus
invests across asset classes, sectors, and geographies where its
integrated investment platforms and proprietary operating
capabilities create an edge to improve performance and drive
long-term value.
10. Lazard & Co., Limited
Lazard & Co., Limited, which is authorised and regulated by
the Financial Conduct Authority in the United Kingdom, and Lazard
Frères SAS (together 'Lazard') are acting exclusively for HSBC
Continental Europe and for no one else in connection with the
Potential Transaction and will not be responsible to anyone other
than HSBC Continental Europe for providing the protections afforded
to their clients or for providing advice in connection with the
Potential Transaction. Neither Lazard nor any of their respective
affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client
of Lazard in connection with this document, any statement contained
herein, the Potential Transaction or otherwise.
This announcement contains both historical and forward-looking
statements. All statements other than statements of historical fact
are, or may be deemed to be, forward-looking statements.
Forward-looking statements may be identified by the use of terms
such as 'expects,' 'targets,' 'believes,' 'seeks,' 'estimates,'
'may,' 'intends,' 'plan,' 'will,' 'should,' 'potential,'
'reasonably possible', 'anticipates,' 'project', or 'continue',
variation of these words, the negative thereof or similar
expressions or comparable terminology. HSBC has based the
forward-looking statements on current plans, information, data,
estimates, expectations and projections about, among other things,
results of operations, financial condition, prospects, strategies
and future events, and therefore undue reliance should not be
placed on them. These forward-looking statements are subject to
risks, uncertainties and assumptions about us, as described under
'Cautionary statement regarding forward-looking statements'
contained in the HSBC Holdings plc Annual Report on Form 20-F for
the year ended 31 December 2020, filed with the SEC on 24 February
2021 (the '2020 Form 20-F') and in other reports on Form 6-K
furnished to or filed with the SEC subsequent to the 2020 Form 20-F
('Subsequent Form 6-Ks'). HSBC undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In light of
these risks, uncertainties and assumptions, the forward-looking
events discussed herein might not occur. Investors are cautioned
not to place undue reliance on any forward-looking statements,
which speak only as of their dates. No representation or warranty
is made as to the achievement or reasonableness of and no reliance
should be placed on such forward-looking statements. Additional
information, including information on factors which may affect the
HSBC Group's business, is contained in the 2020 Form 20-F and
Subsequent Form 6-Ks.
[1] Figures throughout this announcement were converted from EUR
to $ at 1.22, the rate at 1 June 2021.
[2] Based on 31 December 2020 HSBC Group consolidated balance
sheet and target net assets of the Business at closing.
[3] Based on 31 December 2020 HSBC Group consolidated balance
sheet and target net assets of the Business at closing.
[4] Estimated HSBC consolidated common equity tier 1 capital
ratio impact calculated using financial statements dated 31
December 2020 and therefore may be impacted by circumstances
arising between this date and the date of completion of the
Potential Transaction.
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