HSBC’s credit card accounts will soon change hands. Good news for cardholders?
After weeks of fevered speculation, the future of HSBC’s U.S. credit card operations has finally been resolved. Capital One Financial Corporation announced yesterday that it had agreed to buy the business for a premium (over and above the value of the $29.6 billion loan book it is acquiring) of $2.59 billion.
As has been repeatedly reported here, it has been an open secret for some time that HSBC has been seeking an exit from the North American retail banking market in order to focus on a new global strategy. However, it was unclear whether it would find a buyer for the card business, or simply shutter it.
HSBC credit cards no longer at risk?
HSBC’s portfolio of credit cards was much larger than many might have assumed, and the bank had 27.2 million cards in circulation across the country. In addition to more than 10 million cards branded HSBC Premier, or one of its subsidiaries, it also had 3.3 million active accounts in co-branded partnerships with General Motors and AFL-CIO, as well as 13.6 million accounts in 21 partnerships with retailers. These included Neiman Marcus, Saks Fifth Avenue, Menards and Best Buy.
Had the bank shuttered its U.S. card operations, then all of those accounts could have been closed, halting credit card use, and cutting off customers from their lines of credit. The sale means that few if any existing cardholders are likely to suffer that fate, although Capital One is yet to announce its intentions toward them.
What it means for existing HSBC credit card users
What Capital One has said, in a press release, is that the deal:
…enhances Capital One’s existing franchise and scale in the Domestic Card business and accelerates the achievement of a leading position in credit card partnerships. The transaction delivers compelling long-term shareholder value, as it is expected to improve Capital One’s earnings and long-term capital generation trajectory.
It’s hard to see how Capital One could reap those benefits if it were to reduce significantly the number of credit card users it has acquired in the deal.
The transition period during which ownership changes is also unlikely to inconvenience existing customers. In an email, Rob Sherman, vice president for public affairs for HSBC – North America, yesterday told IndexCreditCards.com:
“It’s business as usual for HSBC during the transition of its U.S. cards business to Capital One. HSBC-issued credit cards and private label cards will remain active, and we will continue to offer all card products and services. No action is required by customers at this time. We will be providing more details about the transition shortly.”
Credit card companies’ market shares change
Credit card companies are currently competing energetically for market share, and Capital One’s purchase is bound to enhance its standing. When measured by balances outstanding, it looks set to retain its number-four slot in the rankings, but the acquisition takes the value of its book to $68 billion from $51 billion, and leaves it snapping at the heels of Citi, which is number three with $73 billion, according to an investors’ presentation published on Capital One’s website.
So, at least at first sight, the deal looks to be good news for everyone, with cardholders as well as investors in HSBC and Capital One all having reason to celebrate.
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