HSBC Holdings PLC announced Monday it will sell its Brazil business to Banco Bradesco SA in an all-cash deal valued at $5.2 billion, as it continues to reshape its operations to improve profits. The bank, which is also close to selling its business in Turkey, announced the deal as it said second-quarter net profit fell nearly 4% to $4.36 billion from $4.54 billion a year earlier. Bad loans fell and the bank booked a $1 billion gain in the second quarter on the sale of part of its stake in China's Industrial Bank Co. Pretax profit rose 10% in the first half of the year to $13.63 billion from $12.34 billion a year earlier. Shares were up more than 1% in afternoon Hong Kong trading. Adjusted operating expenses rose 7% to $17.64 billion in the first half. That figure has been closely watched by analysts because high costs incurred to comply with banking rules have tempered the benefits of the bank's restructuring. Four years ago, Chief Executive Stuart Gulliver kicked off an effort to pull HSBC out of countries where it lacked scale or didn't make enough money. He stepped up the program in June with a plan to cut 50,000 jobs and shave up to $5 billion from its annual costs by 2017. The bank on Monday said it would incur one-time costs associated with the plan in the second half of this year, with the bulk to register in 2016. The bank's regulatory woes have often overshadowed its strategy, though, as a host of regulators and authorities globally have found weaknesses in HSBC's anti-money-laundering controls and the governance at some of its units. Fines, settlements and systems cleanups have cost the bank billions of dollars in the past few years and have weighed on returns. The bank said Monday that selling the Brazil business will account for $37 billion of its planned $290 billion reduction in risk-weighted assets it had announced in June. The bank intends to keep a presence in Brazil to cater to large corporate clients. HSBC reduced risk-weighted assets in the first half of the year by $50 billion, a result of selling assets in the global banking and markets division, among other things. It also directed $30 billion of risk-weighted assets into "higher returning areas." Executives in a statement emphasized the bank's "pivot" toward Asia, but said the region is "not the exclusive focus of reinvestment" of its risk-weighted assets. Instead, the bank expects about half of those assets to be channeled to Asia, with the rest dispersed among Europe, the Middle East and North Africa, North America and Mexico. The bank said it would continue reviewing the possibility of moving its headquarters out of London. HSBC has been considering a move to Asia, in part, executives have said, to reduce the impact of a U.K. tax on bank balance sheets and avoid a European clampdown on bonuses. That review is expected to be concluded by the end of the year. Source: MarketWatch
