HSBC’s Sale of Thai Unit Shows Priority Is Scale, Not Geography

December 29, 2011, 11:39 PM EST By Stephanie Tong and Joyce Koh

Dec. 30 (Bloomberg) -- HSBC Holdings Plc’s effort to sell its retail bank in Thailand, a market it entered more than a century ago, marks a shift toward larger-scale operations as the bank sells assets to bolster its capital base.

Bank of Ayudhya Pcl, the Thai lender partly owned by General Electric Co., is expected to complete an acquisition of HSBC’s credit card and personal loans valued at 30 billion baht ($945 million) to 40 billion baht early next year, the Bangkok Post reported on Dec. 27, citing a person in the banking industry it didn’t name.

HSBC, which was trying to buy a bank in Thailand as recently as 2010, would loosen ties to the country just as new rules next year let foreign-owned banks open as many as 20 branches. Stuart Gulliver, chief executive officer of the London-based bank, is reversing two decades of expansion, selling assets and cutting jobs as Europe’s debt crisis saps profit and regulators boost capital requirements.

“HSBC used to look at their business portfolio geographically, but they now look at it by size,” Masahiko Ejiri, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $41 billion, said by phone yesterday. “HSBC’s disposal of assets in Asia may make it less attractive to investors.”

The bank in December announced the sale of its Japanese private banking business, with assets under management of $2.7 billion as of Oct. 31. HSBC, with total assets of $2.7 trillion, will be more disciplined about where it deploys capital, focusing investment on faster growing markets, as it faces “regulatory and inflationary headwinds,” Gulliver said in May.

’Disciplined Management’

HSBC failed in its 2010 bid to buy Siam City Bank Pcl, the country’s seventh-biggest lender by assets at the time, which was eventually sold for about $2.14 billion. The bank aims to cut as much as $3.5 billion of expenses by 2013 to tackle wage inflation in faster-growing economies and prepare for new capital rules, it said in May.

The lender announced 14 transactions from January through Nov. 9, including the sale of a U.S. credit card business valued around $32.7 billion, a Chilean retail bank and a Hungarian consumer-finance portfolio, the lender said. It’s also selling operations in Georgia, Iraq and Poland.

“There has been a disciplined management at HSBC that is going ahead without hesitation to trim businesses they don’t wish to commit more capital in,” Chong Yoon-Chou, Singapore- based investment director at Aberdeen Asset Management Asia Ltd., whose holdings include HSBC shares. “For a lot of investors, this could be a symbolic action to continue to restructure its businesses.”

First Banknotes

HSBC issued the first banknotes in Thailand, in 1889, and made the first foreign loan to the Thai government, for a railroad project, according to its website. In addition to the retail operation it is reported to be selling, the lender offers corporate and investment banking services in the country.

Ayudhya said in June it was in acquisition talks with consumer finance companies, after buying General Electric’s GE Money unit in Thailand in 2009. GE owns 33 percent of Bank of Ayudhya, the biggest stake and more than twice the second- largest holding, data compiled by Bloomberg show.

Ayudhya “welcomes opportunities to grow its business,” Philip Tan, head of the bank’s consumer-finance group, said by phone on Dec. 27, declining to comment on the Bangkok Post report. Varanandha Sutthapreeda, vice president of communications at HSBC in Thailand, also declined to comment. Penny Shone, a Singapore-based spokeswoman for GE, cited a policy of not commenting on “market speculation” in an e-mail today.

Bank of Ayudhya’s shares have fallen 14 percent this year, compared with a 0.9 percent decline in the benchmark SET Index. Bangkok Bank, Thailand’s biggest by assets, gained 4.1 percent in the period.

Bank of Ayudhya had $29.3 billion of assets as of the end of September, making it the nation’s fifth-biggest lender according to data compiled by Bloomberg. Bangkok Bank has $64.7 billion and Krung Thai has $61.6 billion, according to Bloomberg data.

--With assistance from Suttinee Yuvejwattana and Supunnabul Suwannakij in Bangkok and Nathaniel Espino in Hong Kong. Editors: Nathaniel Espino, Mohammed Hadi

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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