HSBC Warns France Sale In Jeopardy Over Capital Concerns

HSBC's planned sale of its French retail banking business to Cerberus-backed My Money Group may fall through due to interest rate rises in France that have boosted the amount of capital the buyer will need after completion, the British bank said on Friday.

The potential failure of the deal would undo one of the bank's biggest strategic asset sales in recent years, and a key pillar of its plan to exit slow-growth Western markets in favour of Asia.

Unexpected interest rate hikes have increased the amount of regulatory capital required by the enlarged purchaser after completion, HSBC said.

"Unless this issue is addressed, the purchaserwill be unable to obtain regulatory approval for the Transaction," HSBC said.

My Money did not immediately respond to a request for comment.

HSBC announced the proposed deal in June 2021 at a nominal price of one euro, as part of a retreat from slow-growing European and North American markets where it has struggled against larger domestic players.

The British lender said at the time it would incur a loss of around $2.3 billion on the disposal.

HSBC said that given the uncertainty over the deal closing, it had for now reversed that accounting hit, with a 0.25 percentage point boost to its core capital ratio as a result.

The deal would see My Money acquire HSBC's 244 French branches, around 3,900 staff and 24 billion euros in assets, creating at a stroke what My Money described in June 2021 as a new challenger bank in France's crowded retail banking landscape.

Under the terms of the deal, My Money Group is required to use its best efforts to obtain regulatory approval for the transaction, HSBC said.

But the buyers have said they are unlikely to be able to do this without amending the terms of the deal, HSBC added.

If it does proceed, it is likely to be delayed, HSBC said.

If the transaction has not completed by May 31 2024, the agreement will terminate automatically, HSBC said, although that date can be extended to Nov. 30 2024 in certain circumstances.

"HSBC remains committed to pursuing the sale providing appropriate terms can be agreed," it said.