HSBC reaches deals to sell most US branches

HSBC will sell 80 of its U.S. East Coast branches to Citizens Financial Group.    © Reuters

NARAYANAN SOMASUNDARAM, Nikkei Asia chief banking and financial correspondent | North America

HONG KONG — HSBC Holdings on Thursday announced its exit from U.S. retail banking, pulling the plug on years of underperformance, to focus on its profitable operations in Asia.

The London-headquartered bank, which has one of the largest U.S. businesses of any non-American bank, said it had reached agreements to sell 90 branches, would convert up to 25 others to serve wealthy international clients and would close as many as 40 others.

The lender said it expects to incur a pretax cost of $100 million from its U.S. exit.

“They are good businesses, but we lacked the scale to compete,” Chief Executive Noel Quinn said in a statement. “This next chapter of HSBC’s presence in the U.S. will see the team focus on our competitive strengths, connecting our global wholesale and wealth management clients to other markets around the world.”

The bank said it will sell 80 Eastern Seaboard branches that serve 800,000 customers and have $9.2 billion in deposits and $2.2 billion in loans to Citizens Financial Group of Providence, Rhode Island.

HSBC’s West Coast domestic mass-market and retail operations, including 10 branches that hold $1 billion in deposits and $800 million in loans, will be offloaded to Los Angeles-based Cathay Bank.

HSBC did not disclose the terms of the deals, which are expected to conclude by next March.

The exit from U.S. retail banking draws a line on HSBC’s four-decade effort to run a universal bank in the world’s largest economy. The push into the U.S. included the disastrous acquisition of subprime lender Household International in 2003, which eventually led to tens of billions of dollars in write-downs for bad loans.

The bank shut much of its U.S. consumer finance business in 2009. It then sold half its branch network and credit card business in the country in 2011 and closed 80 more branches last year.

Over the past decade, senior management and the bank’s board have attempted to boost profits across its U.S. retail banking business in vain without the high-margin card business. Low interest rates since the global financial crisis, and increasing employee and regulatory costs, have crimped margins further.

HSBC is the latest global bank to withdraw from a major regional retail market as poor margins force a rethink of trying to be the bank for everyone. Citigroup last month said it will exit most of its Asian retail business after more than a century.

HSBC has also flagged intentions to exit its French retail operations.

The retreat from U.S. retail to focus on wealthy clients dovetails with Quinn’s wider strategy to boost profits. He aims to deploy half of the bank’s capital — the basis for its lending — to Asia in the medium term to bolster its fee-generating businesses.

The bank is investing an additional $6 billion in wealth management to achieve “double-digit” growth in the Asian region. It said last month that wealth balances in Asia surged 18% in the first quarter from a year before, with the lender adding 600 wealth managers, including 100 in China.

As part of the latest overhaul of the bank, which has 226,000 employees and operations in 60 markets, HSBC plans to cut $100 billion of risk-weighted assets to free up capital and up to 35,000 employees. It is also relocating the heads of all its main revenue-generating divisions to Hong Kong from London.

Last month, Quinn said in an internal memo that Greg Guyett, co-head of global banking and markets, Nuno Matos, chief executive of wealth and personal banking, Barry O’Byrne, chief executive of global commercial banking, and Nicolas Moreau, head of asset management, would relocate in the second half of the year.

HSBC shares climbed 0.3% in Hong Kong compared with a 0.3% fall for the city’s Hang Seng Index in morning trading. The shares have risen 20% this year while the broader index has gained 6.6%

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