HSBC plans to sell its US credit card and retail operations to Capital One, shedding its American holdings in order to focus on the United Kingdom and emerging markets. Capital One is deep in talks with the international banking giant to purchase its credit card portfolio, which would allow it access into the retail credit card market. This represents a significant opportunity for Capital One, as HSBC’s branded retail cards skew towards larger and better-known retailers.
Holding out for a “sensible price”
HSBC has made no secret that it hopes to dump its US holdings, shedding Household Bank and Orchard Bank credit cards among others. However, the success of its other units means that it can bide its time, waiting for the right offer. In May, the bank made its search for a buyer known, but chief executive Stuart Gulliver emphasised that he would sell only for a “sensible price.”
HSBC is in no rush to sell, but Capital One seems an eager buyer. This would be the second major transaction for Capital One, following an agreement in June to purchase ING’s US online banking business. Given the sluggish growth of US financial institutions, said Credit Agricole, a retail banking group, “meaningful follow-on portfolio acquisitions seem to be the only way to make this possible deal accretive.” Capital One, apparently, took this advice to heart.
An eastward focus
Signs of the bank’s eastward gaze are visible elsewhere: it will lay off 30,000 workers by 2013, it sold its assets in Russia and it will shut down Polish branches. While it hunkers down in Europe, it will expand into Asia. It plans to hire 15,000 new workers in Asia and Latin America, tapping into growing demand for loans.
“Growth in the US and Europe is likely to remain sluggish as long as the impact of high debt levels and government budget cuts weigh on economic activity,” said HSBC in its earnings report. But while stunted demand hampered the bank in the West, its profits surged more than 25% in Asia and 10% in Latin America.
CapOne broadens its horizons while HSBC pulls back
HSBC has long been criticised for spreading itself too thin and expanding too quickly. It may have bitten off more than it could chew with Household Finance and its subprime loans. Analysts believed that the bank would have difficulty selling its credit card portfolio, as both GE and Citigroup have so far failed to unload theirs. “The disposal of assets will be positive for HSBC,” said Sandy Mehta, CEO of Value Investment Principals, in an interview with Bloomberg. The bank’s move is likely to trim the fat and streamline its other operations.
Capital One, on the other hand, will use its purchase of HSBC’s credit card portfolio to expand into retail credit cards. As demand for loans remains low, the bank is looking to entice customers in novel ways. The HSBC deal is an expansion of its store credit card presence, building on Capital One’s purchase of Kohl’s Department Stores portfolio earlier this year.
Tim Chen is the CEO of NerdWallet, a credit card company dedicated to bringing you the best international credit cards.