(Bloomberg) -- Eight years after HSBC Holdings Plc sold its Brazil retail-banking unit, profit and revenue are surging at the company’s corporate and investment-banking businesses there.
Earnings before taxes almost doubled last year, to $100 million, and revenue jumped 35% as a capital injection from the parent company started paying off, according to Alexandre Guiao, HSBC’s chief executive officer for Brazil. Guiao said the figures, which include results from assets booked offshore, will probably show a 15% additional increase in revenue this year.
“We have shown results, and my expectation is that we will continue growing and being an alternative for future investments for HSBC,” he said in an interview at the British bank’s Sao Paulo office. “We will continue focusing on cost discipline in Brazil, but we also need to have growth alternatives.”
HSBC’s new global CEO, Georges Elhedery, is considering a major restructuring that could include cutting billions in expenses and dropping some businesses. Last month, the lender agreed to sell its South African corporate branch unit to FirstRand Ltd. after selling its retail and business banking units in Mauritius to Absa Group Ltd. in July.
But business is growing in Brazil. Last year, HSBC sent its unit in Latin America’s largest economy a 500 million-real ($92 million) capital injection, through a subordinated debt transaction. That left the operation with 1.5 billion reais in capital.
The company’s 26.8 billion reais in local assets are still a tiny fraction of the 150 billion reais it had when the unit sale was announced in 2015. It also has assets with Brazilian risk booked offshore, though Guiao declined to disclose the amount.
With 190 employees, HSBC in Brazil has a local lending book and obtained a multiple bank license, which allows it to offer cash management. It also has an investment bank that performs global debt and equity capital-markets transactions, and a merger-and-acquisition advisory business that prioritizes cross-border transactions.
The bank does proprietary trading in Brazil, and trades foreign exchange, interest rates and derivatives for clients. Given its strong presence in Asia, it’s also a top provider of trade finance, Guiao said.
In a previous round of global cost cuts, HSBC sold its money-losing retail bank in Brazil in 2016 to Banco Bradesco SA for $5.2 billion, holding on to a small investment-banking subsidiary with about 50 employees. As part of the deal, the London-based bank agreed to a non-compete period that ended in December 2018, during which it agreed to do only offshore transactions.
“Because we sold the entire bank to Bradesco, we had to rebuild it from scratch,” Guiao said.
Recent Deals
HSBC advised Vale SA in a transaction announced in February in which the Brazilian mining company and Sumitomo Metal Mining Co. sold a combined 14% of Vale’s nickel unit in Indonesia to the government of the Southeast Asian country for $271 million.
It’s also among the banks that won a mandate to sell a 1.2 billion renminbi ($171 million) Panda Bond from Suzano SA, the world’s largest pulp manufacturer, people familiar with the matter said in August.
In June, the World Bank said it gave HSBC a mandate to structure a bond to address reforestation efforts in Brazil’s Amazon region. The principal-protected bond, with an expected nominal amount of approximately $200 million, is designed to provide upfront financing for reforestation initiatives selected by Mombak, a carbon-removal company based in Brazil. A portion of the bond’s targeted return will be linked to the value of carbon credits generated by the projects.
HSBC in Brazil aims to keep serving big companies with a global presence, which includes multinationals with operations in Brazil and Brazilian firms with business in other nations.
“Our focus is 600 groups, of which 100 are Brazilian firms,” Guiao said, adding that clients with operations in more than one country generate three to five times more revenue than those with only a local presence.
He congratulated Brazil President Luiz Inácio Lula da Silva for a “very good international policy,” in which “he manages to be friends with China, Brazil’s largest trading partner, and the United States, the second-largest,” despite geopolitical tensions. That’s another reason Guiao considers the nation a good investment alternative, he said.
There are no plans to return to the retail business, according to the HSBC executive, who said the bank in February launched a partnership with Mastercard Inc. to start offering corporate cards to its clients.
“With our presence in over 60 countries, we want to increase Brazil’s connectivity with the world and the world with Brazil,” Guiao said. “By offering this global connectivity, it brings much better results for the bank worldwide.”
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