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Rumors of HSBC’s demise may be greatly exaggerated

by Peter Andrew
Rumors of HSBC’s demise may be greatly exaggerated

Is HSBC going to sell its U.S. credit cards business, or close it down if it can’t find a buyer? There’s certainly plenty of media coverage suggesting that that’s the plan. However, a company spokesperson told this writer that those spreading such stories are merely “speculating.”

HSBC credit cards galore

HSBC is America’s seventh-largest issuer of MasterCard and Visa credit cards, and its third largest issuer of “private label” cards, those carrying a store or other third-party brand. Its products include cards issued under the HSBC Premier, as well as cards for GM, Sachs, Best Buy and Neiman Marcus, among others.

The company declined to reveal the number of cardholders it services, but said that its “book”, the total value of the balances outstanding on its credit cards, was worth $33 billion in the first quarter of this year.

According to Rob Sherman, HSBC North America’s vice-president for public affairs:

The card business is under strategic review. We haven’t said any more than that, so it’s jumping to conclusions to say that we’re going to sell or close. We are evaluating a number of options… to determine the long-term future of the card business within HSBC.

Spin or reality?

Although Sherman reassures cardholders that “During the review, it’s business as usual for customers,” some industry reporters maintain that the end result of the process is still likely to be either the sale or closure of HSBC’s credit card arm.

The Independent, a U.K. newspaper, reported on a May 11 meeting at which the HSBC’s global chairman, Stuart Gulliver, laid out his new strategy. “Gulliver said he would cut back retail banking and return HSBC to its roots: to finance trade between developed and emerging economies.”

It could be that, in order to achieve those goals, HSBC is considering divesting itself of assets (such as its U.S. credit card operations) that aren’t essential to the new strategy in order to fund acquisitions that are.

Credit card industry doing well

If HSBC’s strategic review does eventually lead to the sale or closure of its American card business, then that realignment of assets would seem to be the only sensible explanation for the decision. It’s unlikely to be for profitability reasons.

Credit card companies Discover and Capital One have both recently published exceptionally healthy results. Indeed, Discover’s net income during the quarter ending May 31, 2011 was $600 million, more than double that for the same period in 2010. Meanwhile, the Financial Times says that Citigroup is reconsidering the disposal of its private-label card portfolio because trading conditions in the American credit card sector have improved so dramatically.

What if you hold an HSBC credit card?

So if you hold an HSBC card, what does all this mean? Well, possibly nothing. The company promises to provide public updates at key milestones during the review process, and it could be many months (Sherman isn’t saying how long it could take) before a decision is reached. And, of course, it’s still possible that nothing will ultimately change.

If a sale is eventually worked out–and The Wall Street Journal says that some believe Capital One is interested–then the impact on customers could be minimal: a different logo on a new piece of plastic.

There could, however, be implications if the business is shuttered. It’s likely that existing credit agreements would remain in force, but cardholders would be unable to draw further on their credit. So should HSBC cardholders now be preparing to make new credit card applications?

Too soon to tell, but on the other hand, it’s never a bad time to compare credit card deals to be sure you’re getting the most from your cards.

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