HSBC Holdings PLC's office building in Buffalo, New York. Doug Benz / Bloomberg

London-based bank receives $2.6 billion for credit arm, shares increase 3.9%

NEW YORK / HONG KONG - Capital One Financial Corp, the lender that acquired ING Direct USA in June, agreed to purchase HSBC Holdings PLC's US credit card business for a premium of about $2.6 billion.

The acquired business will add to Capital One's earnings in 2013, the McLean, Virginia-based bank said in a statement on Wednesday.

The deal, which is to be completed in the second quarter of 2012, will generate a post-tax gain of $2.4 billion for Europe's largest bank, London-based HSBC said in a separate statement.

The purchase from HSBC and the acquisition of ING's US online bank will allow Capital One, which gets more than half its revenue from credit cards, to expand even as slowing US growth caps loan demand.

The deal also takes Stuart Gulliver, chief executive officer of HSBC, a step closer to focusing operations on faster-growing markets and UK retail banking.

"This transaction shows that Gulliver is executing his strategy, easing doubts in the market," Dominic Chan, a Hong Kong-based analyst at BNP Paribas SA who rates HSBC as a "buy", said by telephone. "HSBC can re-deploy the freed up capital to emerging markets and US commercial banking."

The UK lender has this year agreed to sell almost half its US outlets for about $1 billion, sold assets in Russia and said it will shut branches in Poland. The bank also plans to cut 30,000 jobs by 2013 to pare costs.

Shares of HSBC rose 3.9 percent to HK$69 ($8.84), stemming a five-day drop, before trading was suspended on Wednesday. The stock has shed 13 percent this year. Capital One Financial advanced 8.5 percent to $40.82 on Tuesday.

JPMorgan Chase & Co advised HSBC on the sale, while Morgan Stanley, Centerview Partners LLC and the Kessler Group acted as financial advisers to Capital One.

The transaction places an 8.75 percent premium on receivables from the HSBC units, including its $30 billion credit-card portfolio, Capital One said.

Capital One may raise about $1.25 billion in capital and will make a final decision on the amount and timing partly based on when its pending acquisitions are completed, the US bank said. The lender also has the option to sell $750 million of shares to HSBC at $39.23 apiece as part of that fund-raising plan, it said.

The deal includes HSBC's private label, or store-branded cards, and excludes HSBC Bank USA's $1.1 billion credit card business, the British bank said. The gross assets of the business were about $30.4 billion as of June 30, it said.

That private-label portfolio represents about 14 percent of the market, making it the third-largest in the US behind General Electric Co and Citigroup Inc, said David Robertson, publisher of the Nilson Report, a payment-industry trade publication.

"Capital One's specialty has always been trying to find the profitable revolving-credit customer," said Robertson.

"The private-label credit card portfolio will give them an increased ability to do that."

HSBC acquired the credit card unit in 2003 as part of its $15.5 billion purchase of US subprime mortgage lender Household International, now known as HSBC Finance.

In 2009, HSBC halted consumer-finance lending at the unit, which has contributed to about $60 billion of provisions in North America, according to data compiled by Bloomberg.

The business, while being profitable, is "non-strategic" and a sale will depend on whether the bank achieves a "sensible price", HSBC's Gulliver, 52, told investors in May.

The UK lender agreed on July 31 to sell its upstate New York branch network to First Niagara Financial Group Inc for about $1 billion.

The price amounted to a 6.7 percent premium for the $15 billion of deposits along with 195 branches in New York and Connecticut that were sold, according to HSBC's statement.

Bloomberg News

(China Daily 08/11/2011 page18)