Capital One in deal for HSBC arm

Capital One Financial Corp has struck a deal to buy HSBC’s US credit card arm for £1.6bn more than the face value of the loans, the latest in a string of acquisitions for the US bank.

The sale is part of a drive by new HSBC chief executive Stuart Gulliver to streamline the business and cut costs by £2.2bn a year.

The bank said last week it is selling 195 bank branches in Upstate New York for £620m.

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By historical standards, Capital One is paying a low price in the HSBC deal.

“They paid a lower price than we anticipated, which speaks to what the market is like now,” said Chris Brendler, an analyst at Stifel Nicolaus in Baltimore.

The deal further unravels HSBC’s disastrous £9.3bn purchase of US consumer lending firm Household in 2003, which triggered billions of dollars of subprime mortgage losses. Executives now admit the buy was a mistake.

The Household deal created one of the world’s top 10 credit card firms, and HSBC said it gave it the scale and expertise to broaden its cards business across the world.

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Almost half of Household’s £65bn of loans were to credit card customers.

HSBC’s US credit card portfolio earned £620m in pre-tax profit in the first half of 2011 and was consistently profitable during the downturn.

For HSBC, the sale will free up capital when banks are under pressure to bolster their balance sheets, but it will not help Mr Gulliver’s task of lifting profitability, as the US credit card portfolio was a high-return business.

HSBC will book a post-tax gain of £1.5bn on the sale.

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