HSBC sells U.S. card business for US$32.7b

PUBLISHED : Thursday, 11 August, 2011, 12:00am
UPDATED : Thursday, 11 August, 2011, 12:00am
 

HSBC Holdings has struck a deal to sell its credit card and certain retail services businesses in the United States to Capital One Financial Corp, marking another step in the lender's exit from the country as it focuses more on emerging markets.

The US$32.7 billion deal will bring an after-tax gain of US$2.4 billion and represents a premium of 8.75 per cent to gross customer loan balances of US$29.6 billion as of the end of June.

'This transaction continues the execution of the strategy we announced at our investor day on May 11,'' said Stuart Gulliver, the chief executive of HSBC, who announced at the time that he wanted to sell the US credit card business since it had little cross-selling value with other HSBC businesses and was not a core business for the bank.

Gulliver said yesterday the sale would allow the bank to focus its US business on the international needs of customers in commercial banking, global banking, private banking and wealth management.

'Although dilutive in the short term, this transaction will reduce group risk-weighted assets by up to US$40 billion which, together with an estimated post-tax gain on sales of US$2.4 billion, will allow capital to be redeployed over time,' he said.

In addition to its US credit card business, HSBC last week said it would sell 195 US branches to First Niagara Financial Group for US$1 billion and close 13 more branches.

Gulliver has also said the bank wanted to lay off 30,000 staff worldwide, about 10 per cent of total workforce, by 2013, as well as close some loss-making retail banking businesses in Russia and Poland and focus on markets with high growth potential, such as China and India.

The goal of these exercises is to save up to US$3.5 billion a year by 2013 and to boost profits and the bank's share price.

The credit card and retail businesses earned US$600 million in taxed profit in the six months ended June. The sale will boost HSBC's consolidated core tier-1 capital adequacy ratio by 60 basis points to 11.4 per cent.

Capital One will pay for the purchase through cash and stock. HSBC said it would accept up to US$750 million of Capital One shares as part of the deal.

Kenny Lee Yiu-sun, the chief executive of First China Securities, said the sale price was not high.

'But at least, HSBC can still seal a deal amid the market turmoil and it is a good move,' Lee said. 'The US economy is not looking good and it would be much better for HSBC to exit from the US credit card market and to shift its investment to China and other Asian markets, which are recording strong growth.

'HSBC has been spreading itself too widely as it has operations in more than 87 countries, but many of them are not making money.

'It is time for it to follow in the footsteps of Standard Chartered, which has always focused on emerging markets.

'HSBC needs to be more focused for it to become more profitable.'

HSBC shares rose 3.9 per cent in morning before they were suspended from trading together with other seven stocks in the afternoon because of a technical problem at the stock exchange.

Despite the announcement of Gulliver's plan in May, the stock is still down 18 per cent this year, compared with a 13 per cent drop in the Hang Seng Index.

$8.9b

The profit, in US$, attributable to shareholders of HSBC Holdings in the six months to June

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