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HSBC to Offload Insurance Units

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In the latest move to do away with its non-core operations and assets, HSBC Holdings plc (HBC) announced last week that it is planning to divest two of its U.S. insurance businesses to Bermuda-based Enstar Group Limited (ESGR) for $181 million in cash. Household Insurance Group Holding Company, an affiliate of HSBC, will be divesting Household Life Insurance Company and HSBC Insurance Company.

Both firms, which are to be divested, write life insurance and related products that comprise credit insurance, term life insurance, assumed reinsurance, corporate owned life insurance and annuities for the U.S. and Canadian clients. HSBC had acquired Household International Inc. in 2003 and integrated the latter with its subsidiary Household Finance Corporation.

The deal is still subject to regulatory approvals as well as other customary closing conditions. HSBC stated that the transaction is expected to be closed by early next year.

The deal is a part of HSBC’s long-term strategy to revamp its operations in order to stabilize the capital levels and improve efficiency. In May 2011, the CEO of the company had announced plans to reduce the operating expenses by $3.5 million by the end of 2013, through restructuring and contraction of its global business. Further, in August 2011, HSBC also announced its plans to trim down the workforce by 30,000 in the next two years.

With the main intention of focusing more on the fast-growing and profitable markets, HSBC has made significant progress in shedding its unprofitable and non-core operations by divesting or closing more than 35 of its operations across the globe. The major divestitures include the sale of 195 non-strategic branches in the U.S. to First Niagara Financial Group Inc. (FNFG) and its U.S. credit card business to Capital One Financial Corporation (COF).

Moreover, earlier this year, HSBC announced the sale of its general insurance businesses in Asia and Latin America for $914 million. The company will be divesting its general insurance units in Hong Kong, Singapore, Argentina and Mexico to Australia's QBE Insurance Group Ltd. and France-based AXA Group in two separate deals.

Currently, HSBC retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals, we maintain a long term Neutral recommendation on the stock.

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