HSBC Holdings Plc (HSBA), Europe’s biggest bank, will reap a $2.4 billion after-tax gain from the sale of its U.S. credit card division to Capital One Financial Corp. (COF) as the lender focuses on growth in emerging markets.
Capital One will pay a $2.6 billion premium to the division’s loans to customers, for a total price of about $32.7 billion, London-based HSBC said in a statement today. The acquisition will add to Capital One’s earnings in 2013, the McLean, Virginia-based bank said separately.
The purchase will allow Capital One, which acquired ING Groep NV’s U.S. online bank in June, to expand even as slowing U.S. growth caps loan demand. The deal partly unpicks HSBC’s 2003 purchase of U.S. subprime lender Household International and takes HSBC Chief Executive Officer Stuart Gulliver a step closer to the goal he set out in May of targeting the lender’s capital on faster-growing markets.
“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 redeploy the freed up capital to emerging markets and U.S. commercial banking.”
The U.K. lender has this year agreed to sell almost half its U.S. 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 the end of 2013 to pare costs.
HSBC was little changed at 545.1 pence as of 11 a.m. in London trading, for a market value of about 97.7 billion pounds ($159 billion). The stock has tumbled 16 percent this year. Capital One Financial advanced 7.2 percent to 27.97 euros in Munich trading.
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 sale would reduce HSBC’s risk-weighted assets by about $40 billion under U.K. rules. Together with the $2.4 billion gain, the sale will boost HSBC’s core Tier 1 capital, a measure of financial strength to 11.4 percent from 10.8 percent. Capital One said it’s paying an 8.75 percent premium on the receivables.
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 U.S. 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. Capital One said it expects restructuring charges of about $420 million.
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 third-largest in the U.S. behind General Electric Co. (GE) 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 as part of its $15.5 billion purchase of Household International, now known as HSBC Finance. In 2009, HSBC halted consumer-finance lending at the unit, which has contributed to more than $63 billion of provisions in North America, according to Bloomberg data.
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 U.K. 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.