HSBC Holdings Plc (HBC) is reportedly engaged in talks on the possible sale of its credit card business in the U.S. However, according to the company, no concrete decision regarding the transaction has been taken yet.
It was in June that HSBC’s CEO Mr. Stuart Gulliver had announced that the company would shut down its $33 billion U.S. credit card unit if it is unable to find a suitable buyer. Additionally, stating that the card business was not a strategic fit for HSBC, the CEO had hinted that the company’s move is a part of its long-term strategy to reduce costs up to $3.5 billion and cut back retail banking.
Earlier this month, HSBC announced its plan to restructure the business and trim its workforce. The 30,000 layoffs in the next two years are part of the company’s efforts to reduce costs. The company announced the closure of its retail businesses in Russia and Poland as well as the disposal of three insurance businesses. Besides, the company also announced the sale of 195 non-strategic branches, principally in upstate New York, to First Niagara Financial Group Inc. (FNFG) for $1 billion in cash.
Now, to further curtail its operating expenses, HSBC intends to do away with its credit card business. Among the few companies interested in buying the unit, Capital One Financial Corp. (COF) seems to be the front runner. Hence, if Capital One clinches this deal, it would be the second acquisition by Capital One in recent months. In June, the company had announced a deal to acquire ING Direct USA, the online banking unit of Amsterdam-based ING Groep NV (ING), in a $9.0 billion stock-cum-cash deal.
Although profitable, HSBC’s credit card unit is loaded with several riskier assets that the company had taken over while expanding its consumer lending business. These, in addition to the massive size of the credit card portfolio, is hindering HSBC’s divestiture plan.
Furthermore, a single company buying the whole portfolio is least likely in the current scenario, as after the financial crisis, very few companies could afford to purchase such a large portfolio. Moreover, increased regulation of the credit card industry has already suppressed the companies’ profit making.
Hence, if HSBC can sell its credit card unit, then the company will be able to better concentrate on its long-term strategy of focusing on the emerging markets.
HSBC currently retains a Zacks # 4 Rank, which implies a short-term ‘Sell’ rating.
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