* HSBC will slash 6,100 jobs
* To take $10.6 billion goodwill charge
* "a failure of the business model" - HSBC Finance CEO
* Shares down nearly 20 percent on NYSE
(Adds HSBC executives, analyst comment; updates shares; adds
NEW YORK dateline, byline)
By Steve Slater and Juan Lagorio
LONDON/NEW YORK, March 2 HSBC (HSBA.L) is
closing most of its U.S. consumer finance business as it seeks
to put an end to its troubled purchase of Household some six
years ago by writing off most of the value of the sub-prime
"With the benefit of hindsight, this is an acquisition we
wish we had not undertaken," HSBC Chairman Stephen Green said
in a statement on Monday.
Europe's biggest bank will take a $10.6 billion goodwill
charge for its U.S. business and run off most of its loans. The
move will leave HSBC's main focus in the world's biggest
economy on corporate and commercial business, private and
premier banking, and its credit card business.
"It's a failure of the business model. The combination of
the high cost of wholesale funding, combined with the absence
of home equity in the U.S. housing market, plus the high levels
of delinquency that are foreseeable," said Niall Booker, chief
executive of HSBC Finance Corp, in a conference call with
reporters. "We believe it's not sustainable."
HSBC's U.S. bad debts jumped to $16.3 billion last year as
the economy soured, adding to billions lost in recent years
caused by Household, which was renamed HSBC Finance (HFC). The
latest problems prompted the bank to launch a 12.5 billion
pound rights issue on Monday. [nHKG49918]
Household was bought for $14.8 billion in 2003, in HSBC's
biggest ever acquisition, led by former chairman John Bond.
He was criticised at the time for exposing the
traditionally conservative lender to U.S. sub-prime borrowers.
As the U.S. economy deteriorated from 2006, HSBC began to
pull back from U.S. sub-prime borrowers and stopped originating
home loans and auto financing.
It is now going a step further, and will write no further
U.S. consumer finance business through HFC and Beneficial
brands, and close most of its 800 branches. About 6,100 staff
will lose their jobs.
The bank will run off its outstanding $62 billion of real
estate-secured and unsecured U.S. loan portfolio.
"It's not a happy sign for the availability of credit, but
it's expected that people like HSBC will continue to pull in
their horns in a time like this because of the ugly results in
their businesses," said Mike Holland, the founder of money
manager Holland & Co, in New York.
Activist investor Knight Vinke Asset Management has urged
HSBC to cut its losses on HFC throughout the last two years.
It said last year that if HSBC had accounted for HFC's
assets as conservatively as other banks, its losses would have
been over $50 billion, and HFC was unable to support its debt
without help from its parent.
It wanted HSBC to walk away from the business and
bondholders, but HSBC rejected that suggestion as "unthinkable
"The deterioration in the U.S. economy in the last six
months was not forecastable a year ago," said Brendan McDonagh,
chief executive of HSBC North America.
HSBC said U.S. bad debts will "remain elevated" and
operating losses in the business will continue this year and in
"We're recognizing reality," HSBC Finance Director Douglas
Flint told reporters. "In 2003 when we acquired Household
neither we nor anyone foresaw recession and depression in the
United States six years forward."
HSBC shares ended down 18.8 percent to 399 pennies in
London, while the stock HBC.N was down 19.8 percent to $27.92
in afternoon trading on the New York Stock Exchange.
(Reporting by Steve Slater in London, and Juan Lagorio in New
York; Editing by Hans Peters and Tim Dobbyn)