HSBC Holdings PLC (LSE:HSBA)’s exit from the Argentina market received applause from City analysts, who see the US$550 million (£435 million) sale of its business to domestic player Galicia as the right step forward.
“Argentina has been a problematic market for HSBC in recent years given hyperinflation in the region and a sharp currency devaluation, which has resulted in significant earnings volatility for the business,” said Gary Greenwood at Shore Capital Markets.
Greenwood noted that exiting Argentina also “represents a further step in management’s strategy to simplify the group and concentrate resources on areas of the business where greater shareholder value can be created”.
Analysts at Stifel subsidiary KBW agreed that the sale makes sense, though added: “It does feel somewhat disappointing that, as a global business, HSBC is unwilling to look through idiosyncratic volatilities.
“In addition, while in the long term, the disposal should help to reduce noise around the numbers, in the short term it is likely to generate even more.”
HSBC expects to take a US$1 billion pre-tax loss on sales “upon reclassification of the business as held for sale in the first quarter of 2024”.
It is not expected to impact HSBC’s CET1 ratio barring an initial 0.1% reduction in the first quarter of 2024.
Regardless, commentators roundly agree that this short-term noise will be worth the cost, and exiting Argentina will not impact HSBC’s valuation or investment thesis.
KBW is lukewarm on HSBC stock, giving it a 700p price target, while Shore Cap has it at a 'buy' with an 880p price target.