HSBC to exit Bahraini retail banking business + unveils plan to cut costs

HSBC to sell its retail banking business in Bahrain: The lender will sell its Bahraini retail banking operations to the Bank of Bahrain and Kuwait (BBK), HSBC Bahrain said in a notice to customers. The move is pending the Central Bank of Bahrain’s approval and is expected to be completed in 4Q 2025. The lender didn’t disclose the value of the transaction.

The details: HSBC will transfer its retail loans, deposits, and accounts of some 76k customers to BBK. The sale doesn’t include the bank’s corporate and private banking businesses in the GCC nation.

Part of a wider restructuring agenda: The decision to sell comes as the lender continues a sweeping overhaul as it shifts its focus away from low-returning consumer banking activities. HSBC has also laid off 40 investment bankers in Hong Kong, following an earlier decision to shut down its M&As and equities businesses in Europe and the Americas, a source with knowledge of the matter told Reuters.

And a plan to cut costs: The lender “aims to generate approximately USD 300 mn of cost reductions in 2025, with a commitment to an annualised reduction of USD 1.5 bn in our cost base expected by the end of 2026,” it said in 2024 earnings (pdf). “To deliver these reductions, we plan to incur severance and other up-front costs of USD 1.8 bn over 2025 and 2026, which will be classified as notable items. We are focused on opportunities where we have a clear competitive advantage and accretive returns, and we aim to redeploy around USD 1.5 bn of additional costs from non-strategic activities into these areas, over the medium term.”

REMEMBER- HSBC’s restructuring drive began when Georges Elhedery took over as CEO in September. One of his first major moves as CEO was to reorganize HSBC’s global structure, grouping the lender’s Middle East, North Africa, and Turkey (MENAT) operations with Asia-Pacific operations under a newly formed Eastern Markets division. At the same time, Elhedery merged HSBC’s commercial banking business with its global banking and markets team, creating a new wholesale banking unit to streamline operations. The bank has also been doubling down on wealth and premier banking, particularly in the Middle East and Asia.

The lender reported a “strong 2024 performance,” with its income after tax coming in at USD 25 bn, up USD 400 mn y-o-y and revenues stable at USD 65.9 bn. As for its financials for 4Q 2024 — the bank reported an income after tax of USD 600 mn, up from USD 400 mn in 2023, reflecting the one-off USD 3 bn impairment charge related to its stake in Bank of Communications last year, according to its website. Revenues were down 11% y-o-y to USD 11.6 bn, primarily due to foreign currency losses from the sale of HSBC’s Argentina business.

Despite strong earnings, the overhaul has left some investors cautious. HSBC gained 1.38% on the Hong Kong Stock Exchange but fell some 0.21% on the LSE during yesterday’s trading. The restructuring-related expenses the lender is expected to incur are much more than initially anticipated, according to Citigroup analysts.

The big picture: “We are creating a simple, more agile, focused bank built on our core strengths. We continue to take deliberate and decisive steps … I have put in place a smaller, core team of exceptionally talented leaders driven by a growth orientated mindset and a firm focus on dynamically managing our costs and capital,” Elhedery said.

MARKETS THIS MORNING-

Asian markets are in the red in early trading this morning, Japan’s Nikkei is down 1.3%, the Shanghai Composite is down 0.2%, and so are the Hang Seng (-1.7%) and the Kospi (-0.6%).

THE CLOSING BELL-

The ADX fell 0.3% yesterday on turnover of AED 1.3 bn. The index is up 1.9% YTD.

In the green: Abu Dhabi National Ins. Company (+4.5%), Dana Gas (+4.4%) and Rak Properties (+3.7%).

In the red: Abu Dhabi Commercial Bank (-4.4%), Investcorp Capital (-4.1%) and Sudatel Telecommunications (-3.1%).

Over on the DFM, the index is up 0.3% on turnover of AED 855.3 mn. Meanwhile Nasdaq Dubai closed down 0.3%.

CORPORATE ACTIONS-

Shuaa Capital is inviting noteholders of its USD 150 mn notes due on 31 March 2025 to exchange up to USD 75 mn in principal for AED-denominated mandatory convertible bonds, according to a DFM disclosure (pdf). The offer runs from 19 to 28 February, with indicative results announced on 3 March and settlement on 18 March. The offer remains subject to approval from the Securities and Commodities Authority.

ICYMI- Shuaa’s shareholders approved the offer and the issuance of AED 425.5 mn MCBs on 17 February. Last week, the company secured binding commitments from institutional investors for the first tranche, valued at up to AED 150 mn and convertible into shares at AED 0.32 per share. A second issuance of up to AED 275.5 mn will be offered to existing bondholders. Shuaa had earlier said it plans to issue AED 642.5 mn in MCBs to optimize its capital structure.

REMEMBER- Shuaa reached an agreement with bondholders in April 2024 to restructure its USD 150 mn bonds. Bondholders could convert part of their holdings into equity, with the remaining debt settled at a markdown by 31 March 2025.