July 14, 2011 / 9:05 PM / 8 years ago

UPDATE 2-Wells, Capital One eye HSBC card portfolio-sources

* First Niagara, Key, M&T bid for HSBC upstate NY branches

* Antitrust concerns a hurdle for some bidders on branches

By Dan Wilchins and Paritosh Bansal

NEW YORK, July 14 (Reuters) - Capital One Financial Corp (COF.N) and Wells Fargo (WFC.N) are among the bidders for HSBC Holdings Plc’s (HSBA.L) U.S. credit card portfolio, according to sources familiar with the situation.

In a separate HSBC asset sale, U.S. regional banks First Niagara Financial Group FNFG.O, KeyCorp (KEY.N), and M&T Bank Corp (MTB.N) are among the bidders for the bank’s upstate New York branches, sources said.

The asset sales are part of HSBC Chief Executive Stuart Gulliver’s plan to turn around Europe’s largest bank by focusing on its main businesses. HSBC has been criticized for “planting flags” around the world with little consideration to profitability.

The bank said in May it may sell the U.S. credit card unit, which has more than $30 billion in assets.

It also said it would shrink its network of 475 U.S. branches to focus on the international business of U.S. clients and the U.S. business of overseas firms, as well as on a revival in the U.S. manufacturing industry. [ID:nH9E7FS004]

Capital One is seen as a strongly motivated bidder for the credit card portfolio, after it agreed to buy ING Groep’s ING.AS online U.S. bank for $9 billion, according to sources.

The ING deal is expected to leave Capital One with a surplus of deposits, which the bank could use to fund the HSBC credit card loans.

McLean, Virginia-based Capital One was a credit card company that began acquiring banks in the middle of last decade to secure cheaper deposit funding.

Banks are broadly eager to boost their loan books now to increase profits. Loan demand is relatively weak amid the tepid economy, which has tempted many banks to look at acquisitions.

Credit cards have been performing relatively well in recent years, as banks have scaled back lending to marginal borrowers. Capital One and JPMorgan have recently posted strong second-quarter results in their credit card businesses.

Representatives of Capital One, First Niagara, KeyCorp, M&T, and San Francisco-based Wells Fargo declined to comment.

An HSBC spokesman said its asset review is ongoing, and the bank will communicate key milestones when they occur.


Antitrust matters are a big hurdle for some bidders in the branch sale, because many markets in New York are already dominated by just a few players.

For example, if KeyCorp won HSBC’s branches, it would have about 32 percent of the deposits in and around Albany, according to Federal Deposit Insurance Corp data.

If M&T won, it would own nearly 42 percent of the metro Rochester market. In and around Buffalo, where M&T is based, the bank would end up with more than 65 percent of the deposits.

“They would own Buffalo at that point. It would be ridiculous. M&T would need to make major divestitures if they won,” said Ken Thomas, a consultant who works with banks looking to buy branches.

But one banker not involved in the deal waved off these concerns, noting that the buyer could sell branches to appease regulators the way PNC Financial Services Group (PNC.N) did when it took over National City. PNC ended up selling some branches to Buffalo-based First Niagara.

M&T could have to shed up to $3 billion of deposits in upstate New York, which is doable, the banker said. The cost savings from the deal could yield significant benefits for the bank, even after divestitures, he added.

Another source said several smaller banks could be buyers for any branches that need to be sold as a result.

The banks involved in the HSBC deal have had many questions about which loans will be combined with the branches, sources said.

HSBC corporate clients whose loans are not sold, and who are therefore staying with HSBC, may not be interested in depositing their money in a branch belonging to another bank, sources said. That could influence how many deposits end up staying with the branches, which have about $15 billion of deposits now.

The loans and deposits included in the deal can have a big impact on any buyers’ profit from the branches.


HSBC, which is being advised by JPMorgan Chase (JPM.N) on these sales, initially wanted to find one bidder for the businesses. A single transaction could have been simpler, and the bank thought that a buyer for a large credit card portfolio would also like deposits to fund the assets, a source said.

But the bank got comfortable that the credit card and branches could receive a better price separately than bundled together, sources said. A company like Capital One, for example, is more interested in credit cards, while a bank like First Niagara is more interested in bank branches.

JPMorgan declined to comment.

The credit card portfolio includes private label credit cards, which are issued by large retailers. The HSBC portfolio includes cards from companies like Best Buy Co Inc, (BBY.N) Neiman Marcus Group and Saks Inc SKS.N.

Such deals can get complicated because the retailer often has the right to end the relationship if it doesn’t want to move business to the new company, according to sources.

The next round of bids for the branches are expected around the end of the month or beginning of August, one source said.

It wasn’t clear when the next round of bids were due for the credit card business. (Reporting by Dan Wilchins and Paritosh Bansal; additional reporting by Maria Aspan; Editing by Phil Berlowitz, Carol Bishopric, Gary Hill)

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