On Friday, British banking giant HSBC Holdings plc (HBC) concluded the sale of its 195 branches, mostly located in the upscale New York, to First Niagara Bank, N.A., a wing of First Niagara Financial Group Inc. (FNFG), for approximately $1 billion in cash. The sale was a part of HSBC’s strategic revamp.
Last year, HSBC had outlined a strategy to restructure its business and curtail costs up to $3.5 billion by 2013. The strategy involves a paradigm shift from retail banking to commercial and corporate banking and targets investment in high growth economies.
HSBC’s American banking operations are also undergoing a major overhaul. The bank has already sold most of its New York branches. Capital One Financial Corp.(COF) has bought its credit card operations for $31.3 billion in cash. Following the acquisition, the company assumed $28.2 billion of credit card receivables and $0.6 billion in other net assets.
As for First Niagara, this deal would further strengthen its position in its home ground and bolster its consumer base along with significant increases in deposits. Moreover, it would catapult First Niagara among the top banks in the Northeastern U.S, pitting against the leading banking powerhouse M&T Bank Corporation (MTB).
Synopsis of the Deal
The deal was inked back in July 31, 2011. It included 195 branches along with $15 billion in deposits, $15 billion worth of assets, $2.8 billion in consumer and mortgage loans, and $4.3 billion in retail brokerage assets under management. It also had 1 million accounts along with 500,000 customers and a 1,200 strong workforce across the region.
The consideration for the deal was justified at the rate 6.67% premium to the market value of deposits. The deal was exclusive of HSBC’s corporate, commercial and investment banking along with private banking business operations in the region. First Niagara will absorb all the staff of the acquired units.
However, in January 2012, First Niagara had announced to sell 64 of the acquired branches to KeyCorp (KEY), Community Bank System Inc. (CBU) and Five Star Bank – a subsidiary of Financial Institutions Inc. (FISI). The main reason behind First Niagara’s divestiture is to satisfy antitrust concerns raised by the Department of Justice and also for non-alignment of these branches to its growth plan.
Keycorp has agreed to acquire 37 branches by paying 4.6% or $110 million premium on deposits of nearly $2.4 billion. This deal will be executed following the closure of First Niagara-HSBC deal. Until then the branches in concern will operate as HSBC branches. The dates for the conversions of other branches acquired by Community and Five star banks are uncertain, but likely to follow KeyCorp deal.
Conclusion
The sale of retail branches by HSBC marks a concrete step by the company towards achieving its strategic goal of minimizing loss making businesses to enhance concentration on fundamental activities and curtail cost. It must be mentioned that this sale will substantially reduce HSBC’s footprint on the American soil. However, the bank continues to serve relentlessly to the needs of its American consumers through its commercial and corporate banking facility.
Shares of HSBC currently carry a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Considering the fundamentals, we also maintain a long-term ‘Underperform’ recommendation on the shares.
COMMNTY BK SYS (CBU): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
FINANCIAL INST (FISI): Free Stock Analysis Report
FIRST NIAGARA (FNFG): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
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