Banking giant HSBC is set to take a billion-dollar loss after agreeing to sell its Argentinian business which has been plagued by an unstable exchange rate in recent years.
The bank said it is selling HSBC Argentina, which has more than 100 branches and around 3,100 employees, to Grupo Financiero Galicia, a major private financial group in the South American country.
It comes after years of struggles with the highly volatile Argentinian currency.
Around five years ago £1 would buy 56 pesos. On Tuesday £1 was worth nearly 1,100 pesos.
HSBC said the sale, for 550 million US dollars (£435 million), will see it book a one-billion dollar (£791 million) loss in its first-quarter results this year.
The size of the loss could vary for several reasons, including “associated hyperinflation and foreign currency translation”, HSBC said on Tuesday.
Over the next 12 months the business will also recognise 4.9 billion dollars (£3.9 billion) in losses from historical currency translation reserves.
This refers to the loss that is racked up by translating the financial performance of the Argentinian business, which is counted in pesos, on to HSBC’s overall balance sheet, which is counted in US dollars.
“These reserve losses have accumulated over many years and arise from the cumulative translation of the Argentinian peso-denominated book value of HSBC Argentina into US dollars,” HSBC said.
In 2023 alone these losses grew by 1.8 billion dollars (£1.4 billion), the bank added.
The figure is also likely to change between now and when the sale is completed because the exchange rate will keep changing.
HSBC chief executive Noel Quinn said: “We are pleased to agree the sale of HSBC Argentina.
“This transaction is another important step in the execution of our strategy and enables us to focus our resources on higher-value opportunities across our international network.
“HSBC Argentina is largely a domestically-focused business, with limited connectivity to the rest of our international network.
“Furthermore, given its size, it also generates substantial earnings volatility for the group when its results are translated into US dollars. Galicia is better placed to invest in and grow the business.”