HSBC to Divest South Korean Unit - Analyst Blog

On Thursday, Financial Times reported that HSBC Holdings Plc (HBC) is on the final stages of talks to sell its South Korean retail banking operations to KDB Financial Group. This is a part of the company’s strategy to shed unprofitable operations in an attempt to revamp its businesses, stabilize capital levels and improve efficiency.

Back in May 2011, the CEO of HSBC had announced the plans to reduce the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of its global business.

HSBC has 11 branches in South Korea with assets worth Won30.02 trillion ($25.6 billion) as of June 30, 2011. However, the company has been struggling to maintain its market share due to intense competition in the retail banking sector.

Though HSBC declined to comment on the deal talks, KDB Financial chairman confirmed that discussions are progressing well. Established in 2009, KDB Financial has nearly 60 branches. The deal, if finalized, would help KDB Financial to expand its deposit base and compete with its peers more efficiently.

Over the last several months, HSBC has been shedding its non-core assets and trimming down the workforce to control its expenses. In December 2011, HSBC announced the plan to sell its private banking unit in Japan to Credit Suisse Group (CS). The deal, which is expected to be closed by mid-2012, is still subjected to regulatory approvals. Additionally, in August, the company had announced 30,000 layoffs over the next two years.

Further, HSBC has exited its retail banking businesses in Chile, Canada, Poland and Russia. The company has also announced the sale of its 195 non-strategic branches to First Niagara Financial Group Inc. (FNFG) for $1 billion in cash and its U.S. credit card business to Capital One Financial Corporation (COF) for $32.7 billion.

Along with long-term benefits, the divestiture of the South Korean retail banking business will help HSBC to concentrate on its core and lucrative businesses. Moving further, we expect the company to continue with such strategic sale of business units.

Currently, HSBC retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. Also, considering the fundamentals, we are maintaining a long-term Underperform recommendation on the stock.

CAPITAL ONE FIN (COF): Free Stock Analysis Report

CREDIT SUISSE (CS): Free Stock Analysis Report

FIRST NIAGARA (FNFG): Free Stock Analysis Report

HSBC HOLDINGS (HBC): Free Stock Analysis Report

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