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HSBC to Vend Insurance Businesses

HSBC Holdings Plc. (HBC) has announced the sale of its general insurance businesses in Asia and Latin America for $914 million. The company will be divesting its general insurance units in Hong Kong, Singapore, Argentina and Mexico to Australia's QBE Insurance Group Ltd. and France-based AXA Group in two separate deals.

HSBC’s wholly owned subsidiaries – HSBC Insurance (Singapore) Pte, HSBC Insurance (Asia) Ltd and HSBC Seguros, S.A de C.V., Grupo Financiero HSBC – have agreed to sell their general insurance operations to AXA. The net asset value of these units was $48 million as of December 31, 2011. AXA will be paying $494 million for these units, which are based in Singapore, Hong Kong and Mexico.

Moreover, HSBC Argentina Holdings S.A, the wholly-owned subsidiary of HSBC, will divest its general insurance unit, HSBC La Buenos Aires Seguros S.A., to QBE. Further, Hang Seng Bank Ltd., another subsidiary of HSBC, has entered into an agreement to vend its general insurance portfolio, Hang Seng General Insurance (Hong Kong) Company Ltd., to QBE. In total, QBE will pay $420 million for both these units, which had net asset value of $189 million as of December 31, 2011.

These deals are expected to be completed by the end of this year, while the Argentina agreement is scheduled to be closed earlier. However, these agreements are still subjected to regulatory approvals.

Additionally, following the closure of the transactions, a new ten year bancassurance agreements that has been entered into by HSBC and Hang Seng Bank would become effective. As per the bancassurance agreements, AXA and QBE will become the sole providers of general insurance products to retail and commercial banking clients in Hong Kong, China, Singapore, India, Indonesia, Mexico and Argentina. Further, AXA and QBE will pay commissions on product sales and also make profit-related payments to HSBC and Hang Seng Bank.

The current agreements are a part of HSBC’s long-term strategy to revamp its operations for stabilizing the capital levels and improve efficiency. 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. Further in August 2011, HSBC had also announced its plan to trim down the workforce by 30,000 in the next two years.

With the main intention to focus more on the fast-growing and profitable markets, HSBC has made significant progress in shedding its unprofitable and non-core operations by divesting or closing 19 of its operations across the globe as of February 2012. The major divestitures include the sale of 195 non-strategic branches in the U.S. to First Niagara Financial Group Inc. (FNFG) for $1 billion in 2011 and its U.S. credit card business to Capital One Financial Corporation (COF) for $32.7 billion in 2011.

Currently, HSBC retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

Read the Full Research Report on HBC

Read the Full Research Report on COF

Read the Full Research Report on FNFG

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