HSBC sells U.S. card unit to Capital One

HSBC is selling its $30 billion U.S. credit card arm to Capital One Financial Corp for a premium of $2.6 billion, as Europe's top bank streamlines its mammoth operations by getting rid of unwanted businesses.

The sale of the unit is part of a radical overhaul designed to save about $3.5 billion by new Chief Executive Stuart Gulliver.

"This sale frees up capital and it shows that Stuart Gulliver is executing on the priorities that he's laid out," said John Wadle, an analyst with Mirae Asset Management.

"The price the business fetched was somewhat disappointing, but it shows that it was a buyer's market. All in, it is still progress because at least they completed this, and it didn't take too long," he added.

Credit card portfolios are valued at a discount or premium on top of the loans the buyer takes on. Before the financial crisis portfolios could be sold at hefty premiums of over 20 percent, but more recent sales have been at slim premiums, discounts or have been scrapped.

HSBC's U.S. credit card unit has total assets of about $30.4 billion, primarily its loans to customers which will transfer to Capital One's books.

Including the $2.6 billion premium, about 8.5 percent of the assets, the total value of the deal is $32.7 billion, the companies said.

HSBC will book a post-tax gain of around $2.4 billion on the sale.

The business earned $600 million in after-tax profit for the half year ended June 30, 2011. HSBC said the deal would boost its consolidated core Tier 1 capital adequacy ratio by 60 basis points to 11.4 percent at the end of June.

Capital One will pay the consideration in cash and stock, with HSBC agreeing to accept up to $750 million of Capital One shares as part of the deal.
MOTIVATED BUYER

The deal marks the second time Capital One has swooped for unwanted U.S. assets from a retreating European bank in recent months. The McLean, Virginia-based firm said in June it was buying ING's U.S. online bank for $9 billion in cash and stock.

Wells Fargo & Co had also been interested in buying the portfolio, sources have said previously.

"This transaction continues the execution of the strategy we announced at our investor day ... to focus our U.S. business on the international needs of customers in commercial banking, global banking & markets," Gulliver said in a statement.

He said the transaction was dilutive in the short term, but will cut group risk-weighted assets by up to $40 billion. The proceeds from the sale will be used for repayment of debt among others.

HSBC last week said it will shed nearly half of its underperforming U.S. branch network, selling 195 branches to First Niagara Financial Group Inc for $1 billion and closing 13 more.More...