HSBC rebel investor renews attack on U.S. unit

LONDON, March 9 (Reuters) - A rebel investor in HSBC (HSBA.L: Quote, Profile, Research) who has been urging strategic change said that by holding on to its troubled U.S. consumer finance arm the bank was making a bigger mistake than the "catastrophic" purchase of the unit five years ago.

Knight Vinke Asset Management has urged HSBC to sell or "ring-fence" its HSBC Finance (HFC) unit, and rejected comments by HSBC management last week that walking away would be "unthinkable and irresponsible".

HFC is largely made up of the the Household business bought by Europe's biggest bank for $14.8 billion in 2003.

"Would we walk away from Household leaving bondholders high and dry? This is as unreasonable as it is unrealistic," HSBC Chairman Stephen Green told reporters.

Knight Vinke said in an emailed statement on Sunday: "Acquiring Household International was a catastrophic strategic mistake. Holding onto the business, without considering cost to shareholders of doing so, is worse."

"HFC is increasingly dependent on asset sales and support from its parent for funding," Knight Vinke said, adding that the business is carrying far too much debt and will require significant additional capital from HSBC to survive.

Knight Vinke said HSBC's responsibilities should lie with its shareholders and not HFC's bondholders, and said HFC's debt was increasingly held by specialist distressed debt investors.

Record 2007 profits from HSBC were marred by a jump in its bad debt to $17.2 billion, largely due to big losses on sales of subprime mortgages by HSBC Finance. (Editing by David Cowell)