In mid March, when the market rumours that Banco Galicia was planning to buy HSBC Argentina became deafening, I called some senior bankers in Buenos Aires. They focused on the swift revival of Argentine banks’ M&A appetite under new president Javier Milei. The locals told me they thought that Galicia’s strategy made sense – adding scale to one of the country’s biggest banks – but that it was the timing that was the interesting variable: the swiftness of this risk-on signal was validation of a renewed confidence in the new administration.
On Tuesday April 9, Galicia announced the deal had been struck – it had an agreement to purchase HSBC Argentina for $550 million. The final transaction value will be adjusted for the results of the business and fair value gains/losses on HSBC Argentina’s securities between December of 2023 and the closing of the deal.
Banco Galicia will pay $275 million in cash and Grupo Galicia will issue $200 million in B shares to HSBC. Citi reckons that, using February’s data, the operation implies a roughly 0.3x price to book value multiple for HSBC Argentina’s $1.4 billion equity.
Additionally, Galicia will acquire HSBC Argentina’s private debt for $75 million in B shares.
Galicia is getting a good deal. It adds scale to its retail operations: in Argentina, HSBC has around 100 branches, 3,000 employees and a million clients, most of whom are in the more affluent retail section. The bank is a notable acquisition for Galicia itself and a prominent transaction for the market in general.
It is fair to draw the conclusion that Galicia must see an improvement in credit growth from here
The deal also points to improved sentiment among local banks. For any consolidation-driven banking M&A to succeed the acquirer needs their views about the future to be more optimistic than pessimistic – and it’s fair to draw the conclusion that Galicia must see an improvement in credit growth from here. It also reflects the high capital levels held by most of Argentina’s big banks.
Nevertheless, there is a big ‘but’. I have recently met with several senior bankers with foreign operations in Argentina. They argue that the deal sends a different message: why are banks so keen to cut-and-run from Argentina if the country’s future is so bright?
That did come up in my mid-March calls. Some bankers suggested HSBC’s desire to leave was proof of the pervasiveness of Argentina’s economic and financial morass. But HSBC had already withdrawn from many Latin American countries – including its 2015 sale of sizeable Brazilian operations to Bradesco – so I didn’t give this argument too much weight.
Then I met the CFO of Itaú – and he told me the bank had been trying to sell its Argentine bank for 10 years. As soon as a buyer approached, the Brazilian bank jumped at the chance to exit. Off the record, the chief executive of another large onshore financial company said he, too, was desperate to leave Argentina.
Perhaps the opportunity-driven element of these deals is more telling for the sellers than the buyers. After all, it is the sellers who have looked at the many bull-cases for Argentine improvement that are being enthusiastically discussed today but end up deciding to divest their Argentine businesses as soon as a local comes along willing to take the asset off their hands.
For if they don’t sell today, who knows when they might get another chance to leave?
And perhaps it is the keenness of sellers to sell that is more telling. If so, such M&A doesn’t validate Milei – it fundamentally weakens him.
