HSBC Holdings, parent of Hong Kong's biggest lender, is to buy the financial services arm of British clothing retailer Marks & Spencer for GBP762 million (HK$11.04 billion). The world's third-largest bank by market value is negotiating a similar-sized bid for a stake in China's Bank of Communications, and is also reported to be vying with global rivals Citigroup and Newbridge Capital for access to Japan's consumer finance market. 'We go from one acquisition story to another and the message is that HSBC has done its big transformational acquisition with Household International, and is now filling out its higher-yielding consumer business on an opportunistic basis,' JP Morgan bank analyst Craig Turton said. US consumer financier Household International generated US$1.83 billion in a maiden full-year contribution to HSBC's pre-tax profit last year. That helped lift the group's pre-tax result 41 per cent to US$8.77 billion of which US$2.25 billion or 25.6 per cent came from the newly established consumer finance division. It also led to Hong Kong being displaced by the US as the single-biggest profit centre for the group. Household's profitability was boosted by the deal partly because of the improved credit ratings and lower funding costs the HSBC partnership brought, BNP Paribas analyst Patrick Ho said. 'The preliminary impression is that the takeover of Marks & Spencer Retail Financial Services should also produce significant synergies in interest expense. [The financial arm's] average cost of borrowing was around 5.3 per cent last year and for HSBC it was as low as 2 per cent,' Mr Ho said. In a joint statement released yesterday, HSBC and the Marks & Spencer Group said that after the buy-out they would continue to jointly manage and grow the retail financial unit. As at April 3 this year, it had 2.7 million cardholders, about GBP2.5 billion in outstanding credit receivables, GBP439 million in deposits, and about GBP1 billion in funds under management. The unit provides its services from Marks & Spencer's 375 retail outlets and offers customers a range of financial products including loans, savings, investment and general insurance. HSBC will pay an up-front sum of GBP275 million plus net asset value - estimated to be GBP488 million - at completion. HSBC will operate the business under the Marks & Spencer brand. Fox-Pitt, Kelton bank analyst Sunil Garg said the deal was in line with HSBC's stated intention to focus on consumer finance. 'But is a very, very small filler acquisition. This business made about GBP50.6 million at an operating level last year,' he said. 'That's about a 2 per cent return on assets and it could add about 1 per cent to HSBC's group bottom line.'