HSBC Holdings, Plc Market Cap (as of 8/03/13):  $203.55bn

Newcastle Investment Corporation Market Cap (as of 8/03/13): $2.83bn

On March the 5th HSBC Finance Corporation, a wholly owned subsidiary of HSBC Holdings Plc, agreed to sell a portfolio of unsecured and homeowner loans to Newcastle Investment Corporation and SpringLeaf Finance, Inc. in a move to further shrink their loan exposure to the US market. Newcastle Investment Corporation is a very active real estate investment and finance company whose shares have been on an upward trend culminated today in the all-year high of $11.40 per share and that have outperformed the S&P500 returning an astonishing 88%.

The deal includes a portfolio of 400,000 loans as well as a facility that HSBC owns in London, Kentucky. The carrying value of the portfolio together with the facility was estimated at $3.4bn on December 31st 2012 but the announced price was $3.2bn (a 6% discount). The payment will be in cash and the portfolio of loans will be serviced by Springleaf. The discount is greater than the 3% applied in a similar transaction from the past months where Barclays acquired mortgages from ING Direct, and the latter was even making a forced sale due to conditions imposed from the bailout received by the Dutch government in 2008.

HSBC stated that the deal will probably be closed by the fourth quarter of this year.

The sale of its loan portfolio in USA is in line with HSBC’s attempts over the last 2 years to reduce the size of the bank and further proof of its concrete efforts to refocus on its core business. In the specific, this sale is related to part of the portfolio of Household International that was acquired in 2003 and has resulted in losses over losses: the remaining assets from that ill-conceived acquisition would stand at approximately $39bn in case this latest sale was successful. Starting from the ascent of Stuart Gulliver as CEO in 2011, HSBC has already divested 47 businesses and cut 13% of its staff. Nonetheless, cost reduction continues to be a persistent problem at the bank. Following the release of yearly data on Monday, HSBC missed its target of reducing costs to achieve a cost-income ratio of 48-52%. These results together with reputation tarnishing scandals over the last year concerning the mis-selling of payment protection insurance (PPI) to UK customers and money laundering in its Mexican branch have led to a very volatile stock price. However, HSBC has been performing better than other European banks; revenues have increased 6% and the payouts due to the scandals it has been involved in can be considered as one-off losses thus not altering Mr. Gulliver’s plans to discipline and scale down HSBC.


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