Is HSBC’s Decision To Sell Its French Retail Banking Arm A Good Move?

by Trefis Team
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HSBC (NYSE:HSBC) is planning to exit its French retail banking business according to a report by The Wall Street Journal. The report mentioned that the likeliest buyer for the unit would be a French bank looking to add market share. Despite divesting its retail banking unit in France, HSBC is expected to continue to provide wholesale banking operations in the country. Trefis, in its interactive dashboard Why Is HSBC Planning To Exit Its Retail Banking Operations In France?analyzes the contribution of the French retail banking arm to HSBC’s total retail banking business and also details the rationale behind the bank’s decision to sell its retail French operations.

What is the contribution of French Retail Operations to the bank’s total Retail Operations?

French Retail Banking Arm Makes Up Less Than 5% Of HSBC’s Total RBWM Operations

  • HSBC derives less than $1 billion of total revenues from its retail operations in France. As of 2018, the division’s revenue stood at $885 million-accounting for 4% of total RBWM’s revenue
  • Moreover, the division’s contribution to total RBWM revenues has consistently declined over the last few years.

 French Retail Division Accounts For Roughly 6% of HSBC’s total RBWM loans and around 3% of Deposits

  • The French Retail division’s loan balance has steadily increased from around $19.4 billion in 2015 to roughly $23 billion in 2018 primarily led by new home loan business.
  • The division’s contribution to total RBWM loans has averaged around 6% since 2015.
  • The French Retail division’s deposit balance has grown from around $15.6 billion in 2015 to roughly $20 billion in 2018 -accounting for nearly 3% of total RBWM balance.

French Retail Operations Have Historically Contributed A Fraction of total RBWM Profits, With The Division Turning Unprofitable In 2018

  • Operating Profit for the French retail division has declined steeply since 2015, falling from around $400 million in 2015 to just $7 million in 2017. Moreover, the division delivered losses of $65 million in 2018 as a result of adverse financial market variations and low-rate environment.


Why Is The Bank Looking To Sell This Division?

  • French retail division has been struggling of late with the division’s revenues and profits sharply falling.
  • Since 2015, the division’s revenue has declined at an average annual rate of 11%, shedding nearly $370 million of total revenues.
  • Moreover, the division’s profits have tumbled, falling from $395 million in 2015 to a loss $65 million in 2018.
  • In sharp contrast, HSBC’s RBWM division’s revenue has remained constant while its profits have surged by nearly 43%, increasing from $4.8 billion in 2015 to more than $6.8 billion in 2018.
  • The lone bright spot for the French retail division has been its growing loans and deposits balance. The growth in deposits and loan balance has comfortably outpaced the total growth in the bank’s RBWM’s division


Conclusion: HSBC’s Decision To Sell Its French Retail Banking Arm Is A Good Move

  • HSBC’s decision to sell its French retail banking division looks like a good move.
  • The division accounts for less than 2% of the bank’s total revenues and it has begun to incur losses.
  • Although the division’s loan and deposits balances are growing, its margins are shrinking.
  • Most importantly, the bank lacks scale and depth in its retail operations in France when compared to other regions – especially China

To sum things up, the bank’s decision will not have a major impact on the bank’s total operations since the division is churning out losses. Moreover, the division generates only a fraction of the bank’s revenues and hence the impact will be minimal.

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