“With the benefit of hindsight, this is an acquisition we wish we had not
undertaken,” HSBC Chairman Stephen Green said in a statement today.
Europe’s biggest bank will take a $10.6 billion (7.5 billion pound) goodwill
charge for its US business and run off most of its loans.
HSBC’s US bad debts jumped to $16.3 billion last year as the economy soured,
adding to billions lost in recent years caused by Household, which was
renamed HSBC Finance (HFC).
The latest problems prompted the bank to launch a 12.5 billion pound rights
Household was bought for $14.8 billion in 2003, in HSBC’s biggest ever
acquisition, led by former chairman John Bond.
He was criticised at the time for exposing the traditionally conservative
lender to US sub-prime borrowers.
As the US economy deteriorated from 2006, HSBC began to pull back from US
sub-prime borrowers and stopped originating home loans and auto financing.
It is now going a step further, and will write no further U.S. consumer
finance business through HFC and Beneficial brands, and close most of its
800 branches. About 6,100 staff will lose their jobs.
“It is clear that the sub-prime mortgage refinance model no longer operates
effectively,” it said.
The bank will run off its outstanding $62 billion of real estate-secured and
unsecured US loan portfolio.
“We expect the legacy of high-risk loans to take years to wind down,” said
Sandy Chen, analyst at Panmure.
Activist investor Knight Vinke Asset Management has urged HSBC to cut its
losses on HFC throughout the last two years.
It said last year that if HSBC had accounted for HFC’s assets as
conservatively as other banks its losses would have been over $50 billion,
and HFC was unable to support its debt without help from its parent.
It wanted HSBC to walk away from the business and bondholders, but HSBC
rejected that suggestion as “unthinkable and irresponsible.”
HSBC said on Monday US bad debts will “remain elevated” and operating losses
in the business will continue this year and in 2010.
“We’re recognising reality,” HSBC Finance Director Douglas Flint told
reporters on a conference call. “In 2003 when we acquired Household neither
we nor anyone foresaw recession and depression in the United States six
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