COF Capital One Financial Corporation

On Monday, HSBC Holdings Plc’s (HBC) CEO Mr. Stuart Gulliver stated that the company would shut down its $33 billion U.S. credit card unit if it is unable to find a suitable purchaser. Mr. Gulliver made this comment on the sidelines of a World Economic Forum event in Jakarta.

Stating that the card business was not a strategic fit for HSBC, the CEO hinted that the company’s move is a part of its long-term strategy to lower costs up to $3.5 billion and cut back retail banking.

HSBC is among the top ten providers of MasterCard and Visa credit cards and the third largest issuer of co-branded, as well as merchant-branded credit cards in the U.S. However, HSBC’s U.S. card unit diverges from the main aim of the company to link its customers with its growing retail banking business in the international market.

Although profitable, the card unit is loaded with a large number of riskier assets that the company had taken over while expanding its consumer lending business. These, in addition to the massive size of the credit card portfolio, is hindering HSBC’s plan to divest.

Some of the likeliest companies that can be interested in buying some of HSBC’s card assets include Capital One Financial Corp. (COF) and Barclays Plc (BCS). However, a single company buying the whole portfolio is least likely in the current scenario, as after the financial crisis, very few companies could afford to buy such a large card portfolio. Moreover, increased regulation of the credit card industry has already suppressed the companies’ profit making.

Hence, the fate of HSBC’s credit card unit is yet to be seen. If HSBC can sell this unit, then the company will be able to better concentrate on its long-term strategy of focusing on the emerging markets.

HSBC currently retains a Zacks # 5 Rank, which translates into a short-term ‘Strong Sell’ rating.

 
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