Argentina’s currency crisis has come back to bite HSBC, as it announces the sale of its operations in the South American country.
HSBC is selling its business in Argentina – which covers banking, asset management and insurance and $100 million in subordinated debt - to Grupo Financiero Galicia, Argentina’s fifth largest bank, for $550m.
But, HSBC will record a $1bn pre-tax loss on the sale, as it will crystallise losses it has been running on the Argentinian peso-denominated book value of HSBC Argentina when converted into US dollars.
HSBC will also recognise $4.9bn in historical currency translation reserve losses when the deal closes. Those losses swelled by $1.8bn last year because of the devaluation of Argentina’s peso.
Last December, Argentina’s libertarian government led by Javier Milei devalued the peso by about half, as part of their economic shock treatment.
The sale will help fund HSBC’s pivot strategy of shifting capital to India and China.
Meanwhile, investors are losing faith that central banks will make hefty cuts to interest rates this year.
Futures traders have reduced bets on how much the US Federal Reserve will cut rates this year to the lowest level since October, LSEG data shows.
Traders now expect fewer than three quarter-point cuts to US interest rates this year, down from up to six cuts expected in January.
Reuters explains: "Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024.
"The prospect of a first 25 basis point cut in June stood at 49%, down from 57% a week ago, CME Group data showed on Monday."
This repricing follows stronger than expected US economic data, such as last Friday’s forecast-beating US employment report showing 303,000 new jobs were created in March.
Yesterday, JP Morgan CEO Jamie Dimon warned that inflation coud be stickier than forecast, leading to higher interest rates than markets expect.
For the UK, traders expect the Bank of England to cut rates to 4.5% by the end of this year, from 5.25% at present.
The agenda • 7.45am BST: French trade balance for February • 1pm BST: Mexico’s inflation rate for March • 3pm BST: RealClearMarkets/TIPP index of US economic optimism • 6.30pm BST: IMF to publish chapter 3 of its Global Financial Stability Report
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