HSBC chief executive Stuart Gulliver has sold the banks Panamanian business. This adds to the disposal of its operations in Colombia, Peru, Uruguay, Paraguay (to Colombias Banco GNB Sudameris), Costa Rica, El Salvador, Honduras (to Colombias Banco Davivienda) and Guatemala (to Bancolombia, which also acquired HSBCs bank in Panama).
HSBC says it is now focusing on Mexico, Brazil and Argentina in Latin America. Of these markets, Mexico looks a fantastic growth prospect, with a healthy, growing economy and low penetration of bancarization to date. Brazil is big, but growth is slowing and there are profitability challenges in retail operations in the short term. Argentina, which appears to be a basket case from the outside, still offers decent near-term retail banking business and also offers the carrot of substantial financial services growth.
Its interesting given HSBCs local global market bank marketing tagline that the bank has reduced south and central America to three viable markets. Certainly, Colombias banks believe there is money to be made. It has helped HSBCs positive PR spin on its disposal programme that such strong interest in its central American banks from Colombia, whose banks valuations lead the region, enabled Bancolombia to pay between 16 and 17 times earnings for the Panamanian asset.
Being paid well helps justify the retrenchment and the exit from many smaller countries reduces regulatory and operational risk. But to say the bank is leaving markets because of the fear of a repeat of last Decembers $1.9 billion anti-money-laundering fine, as has been suggested by Gullivers testimony to the UKs Parliamentary Commission on Banking Standards, when he said: "Our geographical footprint became very attractive to transnational criminal organizations", sounds like meek surrender to a surely surmountable compliance challenge.
HSBCs assertion that it is focusing on high-growth markets does not align with the growth rates being achieved in Panama (10%), Peru (6%), Colombia (5%) as well as many other countries that have economies that are growing fast and populations that are increasingly embracing financial services. Is HSBC seriously contending that it is jettisoning these markets for better growth rates in Brazil and Argentina?
In Gullivers defence, it can be said that you have to draw the line somewhere. On taking up the job he realized he needed to cut costs and when reviewing HSBCs global operations it would seem that individually these countries dont seem to offer enticing long-term rewards. But together, as these economies increasingly will become as they integrate regionally, the Andeans-plus-central-America countries will likely combine to be an attractive market, however formal or loosely affiliated.
As the Colombians are showing, regional banks will span the fragmented local markets and offer scale and returns across retail, private banking, corporate and investment banking that might lead to awkward questions for HSBC in the future.
And isnt part of HSBCs universal model based on its ability to match corporate funding, trade and FX and other risk-related needs throughout the world. Will focusing on Brazil, Mexico and Argentina weaken this model for the multi-Latinas who dont have such a restricted regional view? And for those outside the region looking to enter it?
As UBS has shown in Brazil, its easier to exit than to enter. HSBC will be hoping it wont want to reverse its Latin America strategy in the future.