HSBC Holdings Plc is among global lenders facing pressure to exit underperforming businesses in emerging markets nations from Brazil and Mexico to South Korea, creating opportunities for local banks to assert control of their home turf, analysts at UBS Securities said on Monday.
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Besides HSBC, global banks such as Citigroup Inc and Standard Chartered Bank Plc have expressed interest in exiting units chiefly viewed as substandard and underperforming businesses, UBS strategist Philip Finch said in a client note.
In the case of HSBC, Chief Executive Officer Stuart Gulliver is facing pressure to reshape the business focus of Europe’s largest bank. He recently told investors at a conference call that operations in Mexico, Brazil, the United States and Turkey pose “the biggest problems” for HSBC.
According to Finch, Canada’s Bank of Nova Scotia ranks among potential candidates to buy HSBC’s Mexican and Brazilian units. Citing recent media reports, he added Brazil’s Itaú Unibanco Holding SA, which is the largest Latin American bank by market value, to the list after a top executive expressed interest in expanding in Mexico late last year.
The report underscores the growing interest among Canadian, Mexican and Brazilian lenders to grow in Latin America as more restrictive capital rules make it harder for global lenders to expand across emerging markets at the pace of previous years.
Likewise, as more global banks look to dispose more Latin American assets that underperform, there will be more opportunities for domestic banks to take back market share and underpin growth, Finch noted. Banks leading market consolidation could benefit from increased pricing power and higher returns
“We expect to see more banks with cross-border exposure dispose of underperforming assets, including those that may have previously been considered as core businesses, in order to unlock value,” the note said.
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HSBC is Mexico’s fifth largest bank with a market share of about 8 percent, Finch said, adding that the value of that unit could be below $8 billion at this point. The bank’s Brazilian unit, which last year generated negative return on equity of 5.4 percent, could be worth between $4.7 billion and $6.2 billion, the note added.
(Reporting by Guillermo Parra-Bernal Editing by W Simon)