HSBC ends US subprime lending
LONDON - HSBC Holdings PLC, Europe's biggest bank, is abandoning US subprime lending six years after a $15.5 billion expansion that led to record loan losses.
Stephen Green, HSBC's current chairman, said the London-based bank regrets the 2003 purchase of Prospect Heights, Ill.-based Household International, which added almost 50 million US clients, many with spotty credit histories.
"It's an acquisition we wish we hadn't done with the benefit of hindsight, and there are lessons to be learned," Green told reporters on a conference call yesterday.
The consumer-lending business of HSBC Finance Corp., the former Household, will stop making loans, HSBC said. The unit will shed about 6,100 jobs and run down a real estate and unsecured lending operation with $62 billion of assets. London-based HSBC also disclosed plans for a $17.7 billion rights offer following losses at the division.
The bank fell 19 percent in London trading to the lowest in more than a decade. It reported a 2008 pretax loss of $15.5 billion from North American operations, compared with a profit of $91 million in 2007.
The exit from US subprime lending was overdue, HSBC shareholder Knight Vinke Asset Management said. "The board of HSBC has finally accepted that its catastrophic investment in Household International, not long ago described by the chief executive as a dream portfolio,' is worthless," the US fund manager said. "The investment has now been fully written off and the business is being shut down."
Even so, further write-downs of HSBC's $34 billion of US subprime loan assets are "increasingly likely given that Household is effectively no longer a going concern and market conditions in the United States continue to deteriorate," New York-based Knight Vinke said.