HSBC sells US card unit to Capital One
HSBC Holdings plc has agreed to sell its US credit card and retail services unit to Capital One Financial Corp for a premium of about USD 2.6 billion, as Europe's top bank streamlines its mammoth operations by shedding non-core businesses.
August 10, 2011 / 14:12 IST
HSBC Holdings plc has agreed to sell its US credit card and retail services unit to Capital One Financial Corp for a premium of about USD 2.6 billion, as Europe's top bank streamlines its mammoth operations by shedding non-core businesses.
The sale of the arm, which had gross assets of USD 30.4 billion at the end of June, is part of a radical overhaul and USD 3.5 billion cost-cutting plan under new Chief Executive Stuart Gulliver."This sale frees up capital and it shows that Stuart Gulliver is executing on the priorities that he's laid out," said John Wadle, an analyst with Mirae Asset Management."The price the business fetched was somewhat disappointing, but it shows that it was a buyer's market. All in, it is still progress because at least they completed this, and it didn't take too long," he added.The business earned USD 600 million in after-tax profit for the half year ended June 30, 2011. HSBC said the deal would boost its consolidated core Tier 1 capital adequacy ratio by 60 basis points to 11.4% at the end of June.Capital One will pay the consideration in cash and stock, with HSBC agreeing to accept up to USD 750 million of Capital One shares as part of the deal.Capital One has been seen as a motivated buyer for the business as it looks to bulk up on assets after the ING Direct deal. Wells Fargo & Co was also interested in buying the portfolio, sources have said previously."This transaction continues the execution of the strategy we announced at our investor day ... to focus our US business on the international needs of customers in commercial banking, global banking & markets," Gulliver said in a statement.He said the transaction was dilutive in the short term, but will cut group risk-weighted assets by up to USD 40 billion and earn help HSBC to earn an estimated post-tax gain of USD 2.4 billion.HSBC last week said it will shed nearly half of its underperforming US branch network, selling 195 branches to First Niagara Financial Group Inc for USD 1 billion and closing 13 more. Earlier this month, it also announced it will axe 30,000 jobs as it slashes costs and retreats from countries such as Russia, Poland and the United States, where it is struggling to compete.HSBC has been criticised for spreading itself too widely, gathering roughly 95 million customers across 87 markets, and Gulliver is aiming to put focus back on profitability.He wants to slash annual costs by up to USD 3.5 billion, sell assets and retreat from countries where HSBC is sub-scale. The revamp, aimed at sharpening its focus on Asia, reverses a strategy that has been criticised for "planting flags" around the world. HSBC's Hong Kong-listed shares rose 3.9% in morning trade, ahead of the announcement, in line with the broader market.The shares are down 18% in 2011, compared with a 13% fall in the benchmark Hong Kong share index.The deal marks the second time Capital One has swooped for unwanted US assets from a retreating European bank in recent months. The McLean, Virginia-based firm said in June it was buying ING's US online bank for USD 9 billion in cash and stock. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
