HSBC pulls back from U.S. consumer lending

In another hit to consumer lending, HSBC (HBC) announced it will shut down HSBC Finance Corp and Beneficial, two consumer lending arms in the United States. Consumers with less-than-stellar credit will lose one of their key sources for getting credit cards, refinancing mortgages and doing debt consolidation.

HSBC Finance catered to middle class customers with less-than-stellar credit. It provided lending for home mortgages, automobile loans and personal loans with a large subprime lending mortgage business. At the height of its operations HSBC had 1,000 offices in 45 states. It also issued Visa, MasterCard, American Express and Discover credit cards, as well as private label cards for third parties, such as General Motors and the AFL-CIO. Beneficial primarily provided mortgage refinance and debt consolidation services.

In making this move, HSBC Chairman Stephen Green said in a press conference this morning, "The current global economic slowdown, combined with extreme volatility in financial markets, means the financial system remains under stress. We determined that HSBC should maintain its signature financial strength."

This move by HSBC highlights a major shift in how banks globally are retrenching in some markets, while expanding in others. This could be a more permanent shift in how money will be deployed in the coming years.

In taking this move HSBC is hoarding cash or shoring up its position, waiting to pounce when the time is right. While its retrenchment from the U.S. consumer market will hurt in the short term, the firm will likely buy up failing banks or their assets when the prices have dropped significantly.

HSBC and J.P. Morgan Chase (JPM) are following similar paths of tightening consumer credit and hoarding cash. Both have fared better with their valuations. Their market value is around $85 billion, which is still down significantly from its high of $200 billion, but doing much better than banks such as Wells Fargo with a value of just $50 billion.

HSBC's fourth quarter showed how hard hit the bank's profits were in 2008. The full year net profit was $5.73 billion down 70 percent from $19.13 billion. HSBC plans to raise $17.9 billion by issuing new shares to existing shareholders. It also decreased its full-year dividend to 64 cents, which is a 29 percent reduction from 2007.

Lita Epstein has written over 25 books including Reading Financial Reports for Dummies.

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