HSBC Holdings Plc, Europe’s biggest bank by assets, agreed to sell a portfolio of U.S. consumer loans for $3.2 billion in cash as it scales back its operations in the country.
The sale to a subprime lender backed by Fortress Investment Group LLC and a mortgage investor managed by the private-equity firm is slated to be completed in the second quarter, London-based HSBC said in a statement yesterday. Springleaf Finance Inc. will also buy HSBC’s loan-servicing facility in Kentucky, with completion expected in the fourth quarter, the bank said.
HSBC Chief Executive Officer Stuart Gulliver has closed or sold 47 businesses since he took the top job in 2011 as he focuses on markets where the bank is most profitable. The U.K. lender is cutting back in the U.S. after its 2003 purchase of Household International Inc. required it to set aside more than $65 billion for souring loans in the country.
“These agreements accelerate the run-off of the legacy consumer mortgage and lending business and are a continuation of HSBC’s strategy to reposition its U.S. operations,” HSBC Finance Corp. CEO Patrick Burke said in the statement.
HSBC rose 0.2 percent to HK$84 as of 9:32 a.m. in Hong Kong trading. The stock has climbed 3.3 percent this year, outpacing the benchmark Hang Seng Index’s 0.3 percent gain.
The book value of the assets being sold was about $3.4 billion at the end of 2012, HSBC said.
“They are taking a loss on this, but it’s not a very big one,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London. “It’s a good deal because it frees up capital that would otherwise be tied up backing loans.”
HSBC boosted its core Tier 1 capital ratio, a measure of financial strength, to 12.3 percent at the end of 2012, from 10.1 percent a year earlier, it said on March 4.
The lender, which last year agreed to pay $1.92 billion to settle U.S. probes of money laundering, completed the sale of its U.S. credit-card unit to Capital One Financial Corp. for a premium of $2.5 billion in May. It agreed in August 2011 to sell its upstate New York branch network to First Niagara Financial Group Inc. for about $1 billion.
Gulliver said on March 4 that the lender would make an announcement on $3.7 billion of U.S. non-real estate consumer loans within weeks. The bank reported full-year pretax profit in North America surged more than 20-fold to $2.3 billion from $100 million, helped by a 51 percent drop in loan impairments.
Newcastle Investment Corp., a real estate investment trust run by Fortress, agreed to buy as much as 50 percent of the HSBC portfolio, while Springleaf will acquire as much as 50 percent and will service the loans, the companies said in a statement. The portfolio consists of more than 400,000 homeowner and personal unsecured loans, Newcastle said.
“It is very clear they see market opportunity in the residential-mortgage space and they’re aggressively growing to take advantage of it,” Jasper Burch, a New York-based analyst with Macquarie Group Ltd., said of Newcastle. “The company is at a critical mass where a spinoff makes sense.”
Newcastle plans to spin off a new residential-focused mortgage REIT called New Residential in the coming months. It began adding residential mortgage investments to its portfolio in September 2011 and has invested more than $1 billion since then, according to a company presentation in February.
The real estate investment trust, which is based in New York, has been partnering with Nationstar Mortgage Holdings Inc., the servicer and lender that was taken public by Fortress last March, on investments in mortgage-servicing rights. Chairman Wesley Edens said on Feb. 28 that it was interested in the non-performing loan market, which has a “robust pipeline.”
“It seems like this could be the year where a lot of that does break loose,” Edens said. “You have the agencies that own many hundreds of billions of dollars in non-performing loans.”