UPDATE 1-HSBC's Brazil exit highlights strategy mistakes, country woes

martes 9 de junio de 2015 17:06 GYT

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By Guillermo Parra-Bernal

SAO PAULO, June 9 (Reuters) - Brazil simply proved too tough for "the World's Local Bank."

Executives at HSBC Holdings Plc's Brazilian unit put relationships with corporate clients before profitability, kept branches overstaffed and failed to protect profits from a deteriorating economy, analysts and investors say.

Strategy missteps coupled with rising competition turned the unit into a problem for London-based HSBC. Now, the moment of reckoning has come.

Chief Executive Stuart Gulliver, pledging a new era of higher dividends, laid out plans on Tuesday to slash nearly one in five jobs worldwide and fix operations saddled with compliance costs and low interest rates. As part of the plan, HSBC's units in Turkey and Brazil were officially put on the block.

The process of disposing of HSBC Bank Brasil Banco Múltiplo, as the unit is formally known, is well advanced. Brazil's top three private-sector lenders have placed bids, a source with direct knowledge of the situation said on Tuesday. The sale could fetch between $3 billion and $4 billion, said the source, who requested anonymity since the talks remain private.

For Gulliver, maintaining a costly business with over 21,000 employees that provided just 1 percent of pre-tax profit made no sense. For shareholders, betting on Brazil was risky as lenders grapple with tax hikes, weak credit demand, rising defaults and the impact of what looks likely to be the country's worst recession in over two decades.

HSBC's exit from Brazil "comes in line with a broader trend of consolidation in the local banking industry driven by large local lenders able to gobble up rivals and ride out a tougher economic outlook," said Claudio Gallina, head of financial institutions at Fitch Ratings in São Paulo.   Continuación...