HSBC to end US consumer lending, cut 6,100 jobs
HSBC to cut 6,100 jobs and wind down US consumer loan business in face of huge losses
CHICAGO (AP) -- HSBC PLC, Europe's biggest bank, said Monday it will no longer write new consumer loans in the United States and will shut down its U.S. lending unit over the next five years due to the subprime mortgage market's collapse. The decision will cost 6,100 U.S. jobs.
The announcement came as London-based HSBC reported a 70 percent drop in 2008 net profit and said it would raise $17.7 billion in new capital through a share issue.
The move will close the books on the British bank's ill-fated decision to buy Illinois-based Household International Inc. six years ago for $14 billion, which elevated HSBC to the unenviable position of biggest U.S. subprime mortgage lender.
"With the benefit of hindsight, this is an acquisition we wish we had not undertaken," HSBC Chief Executive Michael Geoghegan said on a conference call.
HSBC said its retail bank branch business in the U.S. will not be affected and it will still issue credit cards. But due to the weakness of the U.S. market, it will scale back consumer-lending operations in this country and close the HSBC Finance unit, formerly Household International.
That means the end of its HFC and Beneficial brands and the closing of its 800 branches in 46 states, resulting in the job cuts.
"The condition of the U.S. economy has radically deteriorated rather rapidly in the last few months of last year," Chairman Stephen Green told analysts. "It has led us to the conclusion that this business model is no longer viable."
Green said that while HSBC remains committed to the United States, it now must rethink its strategy here. U.S. operations would likely seek to grow incrementally, he said, with a focus on business banking.
"We are not turning our backs on the U.S.," Green said on the earnings call.
The 6,100 jobs being eliminated are out of a total of 35,000 HSBC positions nationwide. An undetermined number will be cut from the company's North American headquarters in suburban Mettawa, spokeswoman Diane Bergan said. The company has a large Chicago-area contingent of 5,000 employees.
The U.S. market was at the heart of the company's decline in net profit last year to $5.7 billion from $19.1 billion a year earlier.
HSBC set aside $24.9 billion in 2008 year in provisions for markdowns such as bad loans and credit risk, up sharply from $17.2 billion in 2007. It also wrote off all the goodwill -- the intangible value of an asset, such as a brand name -- on its U.S. personal finance operations, to the tune of $10.6 billion.
The $17.7 billion will be raised in a rights issue and is meant to shore up the company's capital position without resorting to government handouts such as the ones given to rivals Royal Bank of Scotland PLC and Lloyds Banking Group PLC.
Shareholders will be offered five new ordinary shares for 12 existing shares at a price of 254 pence, a 47.5 percent discount to the share's closing price on Feb. 27. The move is subject to approval by shareholders at a meeting on March 19.
By turning to investors for new capital instead of asking for government aid, the bank would avoid the strings that go with the bailouts.
HSBC also announced it would cut its dividend and not pay bonuses to top executives. It reduced its dividend to $0.64 per share, a 29 percent decrease from 2007 and indicated it may be reduced yet again for 2009.
HSBC confirmed that it lost about $1 billion in the alleged investment fraud by Wall Street financier Bernard Madoff.
British investors were spooked by the company's report, and HSBC's shares closed down 18.8 percent at 399 pence ($5.60) Monday on the London Stock Exchange. Its U.S.-traded shares suffered a similar drop, ending down $6.55 at $28.25 on the New York Stock Exchange.