Hit by poor results, HSBC quits Brazil in $5.2bn deal

© Max Whittaker
Europe’s biggest bank, HSBC, has sold its business in Brazil to Banco Bradesco SA. The UK-headquartered bank’s decision came after years of disappointing results in the world’s second-biggest emerging market.

Entering the Brazilian market in the 1990s, HSBC failed to overcome the challenge posed by the country’s biggest banks: Itau, Bradesco and Banco do Brasil.

HSBC has 854 branches in Brazil, employing 21,000 people. The bank's assets in the country are estimated at about $50 billion.

"I am pleased to be able to announce today a transaction which achieves both a solid financial outcome and swift delivery of one of our stated actions," HSBC CEO Stuart Gulliver said in a statement announcing the sale of HSBC’s Brazilian business.

READ MORE: HSBC to shed 50,000 jobs, close businesses in Brazil &Turkey

After the merger with HSBC, Bradesco will catch up with its Brazilian competitors – Itau, Banco do Brasil and Caixa Econômica Federal – in terms of assets.

"The acquisition will create scale gains and the optimal use of business platforms, leading to bigger nationwide coverage ... and reinforcing the bank's presence in the high-end income segment," Reuters quoted Bradesco as saying.

The selling of the Brazilian business will help HSBC to reduce its assets by about $37 billion. Gulliver had set a target of $290 billion in planned asset reductions to be ready to develop elsewhere.

HSBC’s asset reduction strategy seems to have yielded a boost in profits. The bank announced a 10 percent increase in its pre-tax profit to $13.6 billion in the first half of the year. Revenues rose from $31.1 billion to $32.9 billion, the bank showed in a report Monday.

The profits come as a result of a strong performance in Asia. Market volatility in Asia, headed by China, has helped a series of banks to make bigger earnings.

“The star in the quarter was equities which saw its best performance ever, up 32 per cent quarter-on-quarter and 155 per cent year-on-year — this must have been off the volatility in Asia,” Chirantan Barua, banks analyst at Bernstein, told the Financial Times.

HSBC made the wrong kind of headlines this year, when an International Consortium of Investigative Journalists published a report naming 100,000 clients who were using the bank to evade taxes. A number of countries are also looking into the role of HSBC in foreign exchange rigging. The bank has said it has put aside a $1.3 billion provision connected to these investigations. 

READ MORE: Swiss police raid HSBC Geneva office in money laundering probe

In June, HSBC announced it was axing 50,000 jobs and closing branches in Turkey and Brazil, identified by Gulliver as among four “problem” markets where HSBC would seek more extreme restructuring measures.

HSBC, which in advertising often called itself “the world’s local bank,” employs 266,000 people in 73 countries and territories. Now it intends to switch the focus of its business to Asian markets and is considering moving its headquarters from the UK to Hong Kong, where its profits are high. A final decision will be made at the end of the year.