HSBC says French retail business sale in jeopardy amid capital concerns

On 18 June 2021, HSBC Continental Europe announced it had signed a Memorandum of Understanding (with Promontoria MMB SAS and its subsidiary Banque des Caraibes SA regarding the potential sale of HBCE’s retail banking business in France. The parties subsequently entered into a binding framework agreement on 25 November 2021. My Money Group and the Purchaser are under the control, directly or indirectly, of funds and accounts managed or advised by Cerberus Capital Management L.P. The Purchaser Group has informed HSBC that the significant, unexpected interest rate rises in France since the Framework Agreement was signed in 2021, and the related fair value accounting treatment on acquisition, will significantly increase the amount of capital required by the enlarged Purchaser Group at closing of the Transaction. Unless this issue is addressed, the Purchaser will be unable to obtain regulatory approval for the Transaction. Under the terms of the Framework Agreement, the Purchaser is required to use its best efforts to obtain this approval. However, the Purchaser Group has advised HSBC that they consider that they will be unable to obtain regulatory approval without amending the previously agreed Transaction terms. The parties are continuing discussions. If the Transaction does proceed, it is expected that closing will be delayed. On 30 September 2022, HSBC Holdings plc (and HBCE reclassified HBCE’s retail banking operations in France to held for sale as, at that point in time, the Transaction was anticipated to complete in the second half of 2023, subject to the satisfaction of certain conditions including regulatory approval. Each quarter, HSBC and HBCE review the ‘held for sale’ classification of HBCE’s French retail banking operations in accordance with IFRS 5. Given completion of the Transaction has become less certain, as at 31 March 2023 HSBC and HBCE are required to change the accounting classification of their retail banking operations in France. They will no longer be classified as held for sale. The consequence of this, for HBCE is a EUR2B reversal of the previously recognised impairment in respect of the sale of the French retail banking operations, with a resulting benefit to common equity tier 1. HSBC remains committed to pursuing the sale providing appropriate terms can be agreed and to supporting our clients and colleagues in France at all times. If the Transaction has not completed by 31 May 2024, the Framework Agreement will terminate automatically, although that date can be extended to 30 November 2024 in certain circumstances.