♠ Posted by Emmanuel in Latin America at 7/02/2015 01:30:00 AM
|Adios HSBC in Brazil; we hardly knew ye.|
Recent news that HSBC--which once had an ad campaign styling itself as "The World's Local Bank"--was essentially giving up retail banking in Brazil means that nearly all the Johnny-Come-Lately Western banks have fled Brazil. With sky-high interest rates in Brazil, this should not be the case on first glance:
Making money through lending should not be a problem for banks operating in Brazil. The country's interest rates are currently at an eye-watering 13.75% and expected to rise even higher this year. So it comes as something of a surprise that HSBC has announced this week it will practically end its operation in Latin America's largest economy - retaining only a few large corporate clients.However, operating conditions are difficult in as geographically vast a market as Brazil. With thin activities concentrated in major cities not being enough to achieve profitability on a sustained basis, most have fled...including HSBC now:
HSBC Holdings Plc this week became the third foreign retail bank to abandon or scale back in Brazil in the past two years, leaving the South American nation with just two still doing business there. Citigroup Inc. agreed to sell its credit-card and consumer-finance unit two years ago and Societe General SA decided to close its consumer-finance operation in February. Also giving up on the South American nation: Bank of America Corp., Spain’s Banco Bilbao Vizcaya Argentaria SA, Italy’s Intesa Sanpaolo SA and France’s Credit Lyonnais SA, which shuttered their Brazil retail banks in the past two decades.The political-economic conditions in Brazil are, to be frank, dire. It is in a recession and has a corruption scandal engulfing its government. Having ditched the internationalization strategy, money losers had to go first for HSBC, and none was losing more money than its Brazil operations.
Brazil, geographically the world’s fifth-biggest country, is a punishing place for retail banks trying to break in or expand, and is already home to Latin America’s biggest lender by market value, Itau Unibanco Holding SA, and its largest by assets, Banco do Brasil SA. As opportunities to purchase smaller rivals passed it by in recent years, London-based HSBC also fell victim to new regulatory capital requirements after the 2008 global financial crisis.
“To grow in an economy like Brazil, given the size of its territory, banks need to expand geographically,” Henrique Kleine, head equity analyst at brokerage Magliano SA in Sao Paulo, said in a telephone interview Tuesday. “HSBC lost the opportunity to gain scale. The conditions don’t exist to grow in Brazil anymore.”
It's another sad story on the BRICs Boulevard of Broken Dreams.
UPDATE: It probably didn't help that the Brazilian real is the year's worst-performing currency among major developing economies.