By Helen Murphy and Nelson Bocanegra
BOGOTA (Reuters) - Bancolombia SA (COL:BCOLOMBIA), Colombia's largest lender by assets, agreed to purchase HSBC Bank SA Panama for $2.1 billion, the most ever paid by a local bank and the latest in an expansion wave by financial entities into Latin America.
The acquisition includes HSBC Panama's brokerage, fiduciary services unit, banking business and its insurance company, Bancolombia said in a regulatory filing on Tuesday.
Although Colombia's economy is beginning to slow, the banking sector remains robust and has expanded internationally in the last few years, demonstrating its increased clout in the region after Colombia was awarded investment grade in 2011.
"The transaction is aligned with Bancolombia's strategy to expand its international operations by investing in the growing, solid and profitable market of Panama, where it has been present for over 40 years," Bancolombia said in the statement.
The Bancolombia agreement does not include HSBC Panama's units in Colombia, it said. The sale is expected to close during the third quarter of 2013, subject to regulatory approvals.
On the local bourse, Bancolombia's shares rose 0.1 percent from Monday's close.
Last year, Banco GNB Sudameris agreed to buy HSBC's units in Colombia, Peru, Paraguay and Uruguay for $400 million, while Banco Davivienda agreed to acquire HSBC assets in Costa Rica, El Salvador and Honduras for $801 million.
The biggest purchase by a Colombian company was Grupo de Inversiones Suramericana's 2011 buying ING Group's Latin American assets for $3.9 billion.
NEW MIDDLE CLASS
Bancolombia Chief Executive Carlos Raul Yepes told Reuters last year he was on the lookout for acquisitions in Latin America, with a focus on fiduciary funds and brokerages.
"This doesn't end. We have to keep seeing where there are growth opportunities," Yepes told reporters on Tuesday. "We are always looking."
He said the company is paying for the acquisition in cash and will not need to issue debt. "We have capital and we have liquidity, our levels of solvency are well above the requirements," he said.
HSBC Panama had about $5.7 billion of loans outstanding and $5.8 billion of deposits at the end of September.
As Colombia slowly emerges from half a century of war, foreign investors are flooding its financial sector to tap into the new stability, growing numbers of banking clients and increasing consumer spending.
That confidence has brought a slew of new middle class customers to Colombian banks and helped spark record profits for the sector in recent years.
London-based HSBC could make about $1.4 billion from the sale of the Panama assets, as the business is being sold at three times its estimated net asset value of $700 million.
REDUCE HSBC COMPLEXITY
HSBC Chief Executive Stuart Gulliver has sold or exited 46 businesses since taking over at the start of 2011, as he attempts to focus on the bank's most profitable areas that have scale, good growth prospects and international connectivity.
In Latin America, HSBC will focus on three countries - Brazil, Mexico and Argentina.
Jason Napier, analyst at Deutsche Bank, said the deal would help HSBC cut costs, reduce complexity, boost capital and cut the risk of more regulatory penalties.
Gulliver is attempting to cut HSBC's complexity after it was fined a record $1.9 billion in December for weak anti-money laundering systems in its Mexican and U.S. operations. Gulliver said this month the bank's wide geographic spread had made it attractive to criminals.
"The group is getting simpler but is not simple, and it is not feasible for an organization of this size to have entirely re-engineered itself in the two years since its May 2011 inception," Napier said. "We think it a fairly straightforward proposition that there should be more to come."
Gulliver is aiming to cut annual costs by $2.5-$3.5 billion.
HSBC Panama made a pre-tax profit of $67 million in the first half of 2012 and $128 million for all of 2011, representing about 6 percent of its Latin American profits.
"We see this transaction with a lot of interest because it serves to project us as a banking hub in Latin America," said Alberto Diamond, head of Panama's banking superintendent.
(Reporting by Bogota Newsroom; Additional reporting by Steve Slater in London and Elida Moreno in Panama City; Editing by Lisa Von Ahn, Jeffrey Benkoe and Dan Grebler)