HSBC sells US card unit to Capital One for $2.6 bln premium

HONG KONG Wed Aug 10, 2011 11:32am IST

A view shows the entrance to a HSBC Bank branch in New York August 1, 2011. REUTERS/Shannon Stapleton

A view shows the entrance to a HSBC Bank branch in New York August 1, 2011.

Credit: Reuters/Shannon Stapleton

Related Topics

HONG KONG (Reuters) - HSBC Holdings plc has agreed to sell its U.S. credit card and retail services unit to Capital One Financial Corp for a premium of about $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 $30.4 billion at the end of June, is part of a radical overhaul and $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 $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 percent at the end of June.

Capital One will pay the consideration in cash and stock, with HSBC agreeing to accept up to $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 U.S. 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 $40 billion and earn help HSBC to earn an estimated post-tax gain of $2.4 billion.

HSBC last week said it will shed nearly half of its underperforming U.S. branch network, selling 195 branches to First Niagara Financial Group Inc for $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 $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 percent in morning trade, ahead of the announcement, in line with the broader market.

The shares are down 18 percent in 2011, compared with a 13 percent fall in the benchmark Hong Kong share index.

The deal marks the second time Capital One has swooped for unwanted U.S. assets from a retreating European bank in recent months. The McLean, Virginia-based firm said in June it was buying ING's U.S. online bank for $9 billion in cash and stock.

(Additional reporting by Kelvin Soh; Reporting by Denny Thomas; Editing by Ken Wills and Lincoln Feast)

FILED UNDER:

Reuters Showcase

Land Ordinance

Land Ordinance

Modi says willing to make changes in land decree  Full Article 

Sahara Woes

Sahara Woes

SEBI cancels Sahara's portfolio management licence  Full Article 

Gold Demand

Gold Demand

India gold demand muted, eyes cut in import duty  Full Article 

Coffee's Hot

Coffee's Hot

IPO could value Cafe Coffee Day at $1 billion  Full Article 

Sahara Salaries

Sahara Salaries

Some staff say Sahara has not paid salaries for months   Full Article 

DLF Fined

DLF Fined

DLF says reviewing $8.4 million SEBI penalty  Full Article 

GM Corn

GM Corn

Monsanto says GM corn trial in final stage in India  Full Article 

Rail Budget

Rail Budget

Breakingviews - India goes back to future with $137 bln rail push  Full Article | Full Coverage 

Clean Energy

Clean Energy

India says clean energy a $160 billion opportunity over five years  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage