Zacks_Analysts' Blog : HSBC to Sell Banking Unit in Japan - Analyst Blog

In yet another attempt to revamp its operations, stabilize capital levels and improve efficiency, HSBC Holdings Plc (HBC) has announced the plan to sell its private banking unit in Japan to Credit Suisse Group (CS). This is a part of the company’s long-term strategy to bring down its operating expenses. Back in May 2011, the CEO of the company had announced plans to reduce the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of its global business.

The sale price of the Japanese unit was undisclosed by HSBC; however, the company has stated that the gross value of the assets were $2.7 billion as of October 31, 2011. The deal, which is expected to be closed by mid-2012, is still subjected to regulatory approvals.

However with this step, HSBC is not completely withdrawing its businesses from Japan. The company will continue to offer its services to those clients who have more than ¥10 million ($0.13 million) in assets through HSBC Premier.

According to Credit Suisse, the acquisition of HSBC’s private banking unit in Japan will improve its wealth management capabilities. Further, the deal would nearly double the number of employees (at present about 80) at its private banking unit. Japan is an attractive market for institutional investors. Hence Credit Suisse is aiming to expand in Japan to grab the upcoming opportunities.

However, over the last several months, HSBC has been shedding its non-core assets and trimming down workforce to control its expenses. In August, the company announced 30,000 layoffs over the next two years. Additionally, HSBC has exited its retail banking businesses in Chile, Canada, Poland and Russia. Further, the company has also announced the sale of its 195 non-strategic branches to First Niagara Financial Group Inc. (FNFG) for $1 billion in cash and its U.S. credit card business to Capital One Financial Corporation (COF) for $32.7 billion.

Along with long-term benefits, the divestiture of the Japanese private banking business will help the company concentrate on its core business. Moving further, we expect the company to continue with such strategic sale of business units.

Currently, HSBC retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. Also, considering the fundamentals, we are maintaining a long-term “Underperform” recommendation on the stock.