Europe’s biggest bank, HSBC has finally decided to pull the plug on 40 years of trying to crack the huge US retail banking sector and losing tens of billions of US dollars in the process.
The bank, which is also the biggest in Hong Kong, will be cheered by investors who have tired of losses and indifferent earnings from the US.
Some US banking analysts supported the move with Goldman Sachs saying the sale was a start to making USBC more competitive globally.
“Thus, we see the announced measures as a positive, as they represent a small step towards HSBC potentially becoming a more focused, simpler and more profitable group,” analysts Martin Leitgeb, Andreas Scheriau and Gurpreet Singh Sahi said in a note on Thursday in the US.
HSBC just couldn’t get scale and Covid added to its woes (as it did everywhere) and it had racked up $US547 million in losses in 2020. That was after losses in 2018 and 2019 topping $US400 million combined.
The weak US performance was only part of what was a terrible 34% slide in global earnings for the bank in 2020 to $US8.8 billion from $US13.8 billion in 2019.
Now bank will sell some of the businesses in the US and wind down others over the next year.
Two sales were also revealed by the bank and purchasers separately.
Citizens Bank, part of Citizens Financial Group, has agreed to buy HSBC’s east coast personal and small business banking business including 80 branches.
Cathay Bank, part of Cathay General Bancorp has agreed to buy HSBC’s US west coast business including 10 branches and 50,000 accounts.
The bank said the accounts being sold to Citizens Bank had approximately $U9.2 billion in deposits and $US2.2 billion in outstanding loans at the end of March.
These did not say what the two banks paid for the businesses, though HSBC said it expected to incur pre-tax costs of $US100 million connected with the transactions.
It is a part of its switch of focus back to its Asian roots (especially China) which remains it biggest and most profitable set of businesses.
The bank said in a statement late on Wednesday it would exit retail banking for most individual and small business customers but retain a small physical presence in the United States to serve its international affluent and very wealthy clients as part of the Asia first approach.
HSBC said it would sell or close around 90 of its 148 outlets in the US, close others and retain about 20 locations in some of its existing American markets and turn them into what it calls international wealth centres. This the bank claimed would help its focus on “the banking and wealth management needs of globally connected wealthy and wealthy clients.”
As a result, banks will no longer serve customers of banks with balances less than $US75,000. CEO Noel Quinn said in the statement that HSBC would break relationships with all retail customers, including small businesses.
“In the next chapter of HSBC’s presence in the United States, the team will focus on competitiveness and connect global wholesale and wealth management clients to other markets around the world,” said HSBC Group Chief Executive Officer. Quinn said in the statement released in Hong Kong and globally.
He said the bank’s US mass retailer business was “a good business, but uncompetitive.”
February saw the bank reveal its revised strategy focused mainly on wealth management in Asia, and at the same time said it was “exploring organic and inorganic options” for its American retail banking franchise.
As part of Quinn’s strategy to slash costs across the banking group and redouble efforts to bolster growth in its main markets of Asia and the UK, the London-headquartered bank has been looking to step back from sub-scale markets and businesses.
HSBC has also entered final negotiations to sell its French retail banking business to a private equity firm, Reuters reported in March.
The US has been a black hole for HSBC. And earlier foray to build up its presence saw it buy US finance company, Household Finance in 2003 for $US14.8 billion and then stumble into the subprime mortgage disaster and lose or write off more than $US20 billion over several years, including a single year loss of more than $US10 billion in 2008-09 when it closed most of its US consumer finance business. Household Finance had bad debts of more than $US16 billion in 2009 when it was renamed HSBC Finance.
That means total losses including the purchase price cost HSBC more than $US30 billion which is still a considerable amount of money to lose 13 years later in 2021.
That move saw HSBC decide its US focus would be on corporate and commercial business, private and premier banking, and its credit card business.
Now retail banking is out, Asia is in and France is on the market. Other parts of the bank are rumoured to be up for sale as well.
HSBC has a large presence in Australia focusing on Asian communities here with links to Hong Kong and China and trade.
