By Chris Dorrell
HSBC’s exit from the French retail market has been thrown into doubt after Cerberus Capital said it will need to stump up more cash to fund the transaction as a result of rising interest rates.
In a statement today, HSBC said “unexpected interest rate rises” have forced Cerberus to significantly increase the amount of capital required to meet regulatory approval for the acquisition.
However, Cerberus told HSBC it will be unable to meet the required standard without amending the previously agreed transaction terms.
As a result, the deal is likely to be delayed and could even be abandoned, although HSBC affirmed that “both parties remain committed to the sale”.
“The parties are continuing discussions,” the bank said.
HSBC will no longer classify the business as ‘held for sale’. This means a $2bn impairment related to the sale will be reversed, boosting the bank’s CET1 ratio – the highest level of bank capital – by 25 basis points in its upcoming first quarter results.
Cerberus is a US private equity firm funding the buyer, My Money Group. Under the terms of the agreement, My Money would have acquired 244 retail branches and around 3,900 employees for the notional fee of €1.
My Money hoped to create an “exciting and diverse challenger bank” in the French retail market.
The delay frustrates HSBC’s attempts to shed its underperforming divisions as it faces increasing pressure from shareholders to spin-off its Asian business, which generates the majority of its profit.
Alongside the disposal of its US retail bank and planned exit from its Canadian business, the deal was one of HSBC’s most significant withdrawals.
Activist shareholders demanding a split will likely be emboldened if the transaction falls through or faces significant delays.
Earlier this month HSBC executives travelled to Hong Kong to meet with disgruntled investors. Chair Mark Tucker told shareholders “It would not be in your interest to split the bank,” arguing a demerger would entail “material execution risks”.
HSBC will face a vote on a split at its AGM next month after bowing to shareholder demands.
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