Yet after around a year of trying to flog the unit, he has only managed to offload the loan portfolio, to Blackstone. Elhedery is keeping mum on what the headline price is, but warns it’ll result in an “immaterial” loss of less than $100 million. Meanwhile, no one seems to want the deposits business, so he’s going to shut it down in the next 18 months or so.
That is very odd. Deposits are lenders’ cheapest and usually most sticky form of funding. And two of the more obvious potential local buyers — Bank of Queensland and Bendigo and Adelaide Bank — have more loans than deposits, so would really benefit from more of the latter. Macquarie, meanwhile, is so keen on growing its retail business that it just promoted that division’s boss to be group CEO.
HSBC exits Australian consumer banking with a loss
Here’s a head-scratcher: why would a profitable top-10 retail bank in a country not just get out of the business, but lose money doing so? That’s the question HSBC shareholders must be asking themselves after the UK lender said on Friday that it was getting out of the consumer loans-and-deposits game in Australia.
It’s understandable that CEO Georges Elhedery doesn’t see much value in staying. The A$36 billion, or $25 billion, in home and personal loans the bank holds Down Under is just a blip next to the $650 billion on market leader Commonwealth Bank’s balance sheet, let alone the $1 trillion HSBC has in total. It’s a similar story for its $26 billion of retail deposits in the country.
Shareholder value questions remain ahead of results
The result of the HSBC unit being all dressed up with nowhere to go is that it’ll cost around $300 million to wind down. Compare that to international rival Citi, which pocketed $880 million from selling its Australian consumer business to top-four player National Australia Bank in 2021. That was about one-third the size of HSBC’s outfit, suggesting Elhedery could be leaving as much as $2.6 billion in shareholder value on the table in his quest to simplify the bank.
That is surely unacceptable to shareholders and demands an explanation. Was the CEO asking for too high a price? Could he still sell chunks of the unit rather than shutter everything? Could he not use the deposits to help fund the wholesale banking business Down Under that it’s keeping, as JPMorgan is doing in the UK? Or are HSBC’s Aussie-held deposits just not compatible with domestic lenders — say, because the international lender has a lot of foreign-currency or short-term deposit accounts?
Luckily, investors don’t have to wait long to ask such questions: HSBC unveils its first-half results on Tuesday. Elhedery deserves a grilling.
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