The confirmation of HSBC Holdings Plc's intentions to sell off its Brazilian unit, but yet still serve corporate clients in the country, has raised questions as
to whether the company will look to offload all of HSBC Bank Brasil SA - Banco Múltiplo, or only a large portion of it.
Confirming months of speculation, HSBC on June 9 said it plans to sell its operations in Brazil. However, the company said it would "maintain a presence
in Brazil to serve large corporate clients with respect to their international needs."
According to analysts speaking to SNL, HSBC has a few ways in which it might accomplish its goals in Brazil. It could, on the one hand, sell off all of its
Brazilian operations, including its corporate portfolio, but then still access the Brazilian market through its global platform. On the other hand, it could break
out the corporate portfolio from the unit's sale and hold on to it. The latter option, however, would significantly impact the potential value of the unit's sale,
which reports have put at between $3.2 billion and $4.6 billion. "The entire banking industry overall is interested in HSBC's large corporate clients. An
apportionment [of that asset] would probably have an impact on the bank's valuation," André Riva, a senior banking analyst at Grupo Bursátil Mexicano,
told SNL. The analyst explained that while the Brazilian banking sector is under pressure, both from a slowing economy and recent corporate corruption
scandals, financial institutions still seek out corporate clients as a strategically important part of their business.
"This isn't the best moment, but this is a low default portfolio, with more stability compared to individuals and small and medium-sized enterprises.
Strategically, the banks have increased their exposure [to large corporate clients]," the analyst said.
For those same reasons, HSBC's plan to hold on to its large corporate client relationships in Brazil is an "intelligent solution," Luis Miguel Santacreu, a
senior analyst for financial institutions at Austin Rating, said to SNL.
"It would be a shame if they left Brazil definitively after being in the country for almost 20 years. It wouldn't make sense," Santacreu said, noting that the
bank has strong relationships with a group of companies. "They could have a smaller office and use HSBC's global platform [to deal with those clients]."
Still, Santacreu said HSBC is unlikely to spin out its corporate portfolio in Brazil prior to a sale, noting that it would be a complicated process. Instead, he
suggested that whoever buys HSBC Brasil would likely be subjected to noncompete clauses to protect HSBC's relationships with a number of large
corporate clients.
"If [a noncompete clause] is agreed to in the deal, everything is possible," Santacreu said. He also suggested that that HSBC might withhold the names
HSBC plan to sell Brazil unit, keep corporate clients could muddy valuation process, analysts say
1. Friday, June 12, 2015 4:31 PM BRT
HSBC plan to sell Brazil unit, keep corporate clients could
muddy valuation process, analysts say
By Karla Mendes
The confirmation of HSBC Holdings Plc's intentions to sell off its Brazilian unit, but yet still serve corporate clients in the country, has raised questions as
to whether the company will look to offload all of HSBC Bank Brasil SA - Banco Múltiplo, or only a large portion of it.
Confirming months of speculation, HSBC on June 9 said it plans to sell its operations in Brazil. However, the company said it would "maintain a presence
in Brazil to serve large corporate clients with respect to their international needs."
According to analysts speaking to SNL, HSBC has a few ways in which it might accomplish its goals in Brazil. It could, on the one hand, sell off all of its
Brazilian operations, including its corporate portfolio, but then still access the Brazilian market through its global platform. On the other hand, it could break
out the corporate portfolio from the unit's sale and hold on to it. The latter option, however, would significantly impact the potential value of the unit's sale,
which reports have put at between $3.2 billion and $4.6 billion. "The entire banking industry overall is interested in HSBC's large corporate clients. An
apportionment [of that asset] would probably have an impact on the bank's valuation," André Riva, a senior banking analyst at Grupo Bursátil Mexicano,
told SNL. The analyst explained that while the Brazilian banking sector is under pressure, both from a slowing economy and recent corporate corruption
scandals, financial institutions still seek out corporate clients as a strategically important part of their business.
"This isn't the best moment, but this is a low default portfolio, with more stability compared to individuals and small and medium-sized enterprises.
Strategically, the banks have increased their exposure [to large corporate clients]," the analyst said.
For those same reasons, HSBC's plan to hold on to its large corporate client relationships in Brazil is an "intelligent solution," Luis Miguel Santacreu, a
senior analyst for financial institutions at Austin Rating, said to SNL.
"It would be a shame if they left Brazil definitively after being in the country for almost 20 years. It wouldn't make sense," Santacreu said, noting that the
bank has strong relationships with a group of companies. "They could have a smaller office and use HSBC's global platform [to deal with those clients]."
Still, Santacreu said HSBC is unlikely to spin out its corporate portfolio in Brazil prior to a sale, noting that it would be a complicated process. Instead, he
suggested that whoever buys HSBC Brasil would likely be subjected to noncompete clauses to protect HSBC's relationships with a number of large
corporate clients.
"If [a noncompete clause] is agreed to in the deal, everything is possible," Santacreu said. He also suggested that that HSBC might withhold the names of
its large corporate clients to the unit's buyer.
"It would reduce its price, but the bank would keep its clients," he said.
Insofar as the actual valuation any buyer would put on the Brazilian unit, the analysts noted that there are numerous aspects that the potential bidders
will be looking at when they gain access to HSBC Brasil's data room, which is reportedly set to happen June 15. Banco Bradesco SA and Itaú Unibanco
Holding SA and Banco Santander (Brasil) SA have all been reported to be taking part in that process, with Bradesco seen as the leading suitor for HSBC
Brasil.
All three institutions have significant overlap with HSBC Brasil's branch footprint, and how each bank perceives the costs and opportunities in integrating
such a footprint could heavily influence their relative valuations of the HSBC unit.
"The buyer wouldn't pay for something that it already has," Santacreu noted. However, as Riva noted, such overlap does bring opportunities for cost
savings, by consolidating branches.
"The more overlap the better in those types of operations as [the buyer] can close branches and keep its clients. … That means synergies and cost
savings," Riva said, noting that Bradesco has the most potential to capture the maximum amount of synergies as it has the largest branch network.
HSBC reportedly plans to pick a top bidder for an exclusivity period by mid-July and to wrap up the entire process in August.
Article
Source: SNL Financial | Page 1 of 1