Dealtalk: HSBC faces tough sell for U.S. cards unit

The HSBC building is seen on Canary Wharf in London May 11, 2011.

NEW YORK (Reuters) - HSBC (HSBA.L) is considering selling its U.S. credit card arm, but it may not like the price potential buyers are willing to pay.

Europe's biggest bank said on Wednesday that it may sell the more than $30 billion unit, as part of a global bid to dispose of businesses that aren't sufficiently profitable.

But not many buyers remain for such large credit card portfolios since the financial crisis, and a regulatory crackdown has made it harder to turn a profit. Industry members said it would be difficult for HSBC to get the premium it wants for the value of the business on its books.

The philosophy of "'This will only sell at the right price' has been a very nice do-nothing strategy for the last few years," said Steven Kietz, founder of payments consulting firm Woodbury Advisors and a former credit card executive for Citigroup Inc (C.N) and JPMorgan Chase & Co (JPM.N).

Since 2007, both Citigroup and General Electric Co (GE.N) have tried -- and failed -- to sell similar large U.S. credit card portfolios.

Kietz estimated that in the current market, HSBC could sell its portfolio for a premium to book value in the "low single digits, plus or minus."

But the bank said on Wednesday it is not willing to sell its credit card unit at just any price.

"We have lots of capital and lots of liquidity so we're not a forced seller," Chief Executive Stuart Gulliver said in a presentation.

Barclays PLC (BARC.L) and Capital One Financial Corp (COF.N) are the likeliest potential buyers for at least pieces of HSBC's portfolio, according to several industry members.

Citigroup and General Electric's GE Money Bank, having failed to sell parts of their credit card businesses, might actually be willing to bolster those operations now and buy at least part of HSBC's unit, the industry members said.

Barclays, Capital One, Citigroup and GE declined to comment.

NURSING LOSSES

Selling the whole business would be tough in part because U.S. banks are still nursing their losses from the financial crisis and rebuilding their capital levels, leaving few able to even look at a more than $30 billion portfolio.

And a sweeping credit card law in 2009 restricted U.S. lenders' ability to charge fees and raise interest rates. That law cut especially deep at HSBC and other lenders that once specialized in extending credit to riskier customers in exchange for high fees and interest rates that, before the new law, could be raised at any time, for any reason.

"Certainly the Credit Card Act has dimmed the prospects for issuers in this space," said Irving Levin, who founded part of what became HSBC's U.S. credit card business. He founded subprime lender Renaissance Holdings and sold it to Household International, the U.S. consumer lender that HSBC bought in 2003.

"That (subprime) world has really gotten a lot smaller in the last few years," Levin said. "For most issuers, I don't think there's a good investment thesis to go along with on subprime credit card accounts."

All large U.S. lenders tightened credit during the financial crisis, as unemployment surged and people stopped paying their bills. Since then some lenders, including JPMorgan Chase and American Express Co (AXP.N), have given up on lending to all but the most creditworthy borrowers. Industry members said both companies were unlikely to consider buying HSBC's credit card assets.

HSBC also issues credit cards on behalf of retailers including Saks Inc (SKS.N) and General Motors (GM.N). People mainly use those cards to buy things from those specific merchants.

That store card business could attract the interest of Capital One, which is trying to expand its lending on behalf of retailers. Last month Capital One bought $3.7 billion of credit card loans from JPMorgan Chase & Co (JPM.N), as part of a deal to issue the credit cards to customers of retailer Kohl's Corp (KSS.N).

"It's more credible to see Capital One buying the store card thing than the whole thing," said Leigh Allen, a former Citigroup investment banker who brokers card portfolio sales.

Barclays may also be interested in some part of HSBC's portfolio, analysts said. Barclays' U.S. credit card arm has been trying to widen its share of the heavily consolidated U.S. market since 2004.

Citigroup, meanwhile, is still trying to sell its $45 billion store-card portfolio, which includes credit cards for Sears (SHLD.O), Macy's (M.N) and Home Depot (HD.N). But it has said it will consider acquisitions to make that portfolio stronger, even as it continues seeking buyers of its own.

General Electric's GE Money Bank, which specializes in store cards, put its credit card operations up for sale in 2007, but failed to find a buyer and ultimately took it off the block. Now GE has recommitted to its store card business.

"Credit card lenders in general are seeing that the worst is behind them and there is light at the end of the tunnel," said Steven Jacowitz of East End Consulting Partners, who previously managed credit card portfolios for retailers including Saks and Bloomingdale's.

"Because of that I think that they will be more interested in keeping those assets on the books and looking to grow," he said.

(Reporting by Maria Aspan; Editing by Phil Berlowitz)