Banking

If HSBC’s selling its branches, who’s buying?

There are several unanswered questions when it comes to a report that HSBC Holdings could pull the plug on its 40-year experiment in the United States.

Would the London company — which the Financial Times said is mulling “a complete exit from retail banking” — seek a single buyer for a 152-branch network concentrated along both coasts? Could it try to sell HSBC Bank USA in smaller blocks? What banks have the size and stomach to buy the branches?

A number of banks could be interested, industry observers said, including U.S. Bancorp in Minneapolis; Citizens Financial in Providence, R.I.; KeyCorp in Cleveland; M&T Bank in Buffalo, N.Y.; and New York Community Bancorp in Westbury. Canadian banks could also see the branches as a way to bulk up south of the border.

“To me, the biggest question is will this be a whole transaction or is this going to be a breakup?” said Chris Marinac, an analyst at Janney Montgomery Scott. “If they break it into parts, anything is possible.”

HSBC, which has been constantly repositioning its U.S. operations to improve profitability, could share more information in February when it updates investors on the status of a cost-cutting effort CEO Noel Quinn accelerated this fall because of economic challenges tied to the coronavirus pandemic.

The company has made several pivots since the 2008 financial crisis. HSBC closed its U.S. consumer finance business in 2009. Three years later, it sold its upstate New York retail franchise and outsourced mortgage processing and servicing.

The restructuring effort, part of a broader efficiency plan announced weeks before the pandemic struck the U.S., marked a reversal from HSBC’s June 2019 plan to open up to 50 branches to reach more mass-market customers.

HSBC has been looking to cut 35,000 jobs and unload $100 billion in assets globally over a three-year period. The goal is to step back from lower-performing markets such as the U.S. and France to invest in higher-growth markets in Asia. The company closed 80 U.S. branches and reduced its staff by 11% over the first nine months of this year.

The company has long struggled with stiff competition in the U.S. retail market, said Maria Rivas, an analyst at DBRS Morningstar. HSBC Bank USA regularly competes with JPMorgan, Bank of America and Wells Fargo. She said the company does not intend to close all of its U.S. business lines.

“We see that competition in the U.S. market is strong, with the largest players having dominant market share,” Rivas said. “We are seeing other European players also facing some challenges to compete … in the U.S.”

An HSBC spokesman said the company has made no decision on its U.S. strategy, including the retail business, while referring to Quinn’s recent statements.

Potential bidders might like what they see. HSBC Bank USA, which is based in Tysons, Va., has $164 billion in deposits — consisting mostly of low-cost core funding — and $67 billion in loans, according to data from the Federal Deposit Insurance Corp.

But the footprint might present some challenges. While more than half of the bank’s branches are in and around New York City, another 52 are in big West Coast markets. Others are located around Washington, D.C., and in South Florida.

The nature of the footprint could be hard for some banks to absorb, said Brian Klock, an analyst at Keefe, Bruyette & Woods.

“It would be easier for HSBC to sell it to someone like U.S. Bancorp who has operations [in California] and could add to what they’ve got in New York City,” Klock said. Banks that lack widespread networks “would have to figure out how to sell those [outlier] branches.”

Other foreign banks that have looked to exit the U.S. retail market in recent years, including Royal Bank of Canada and Banco Bilbao Vizcaya Argentaria in Spain, had branch networks spanning a handful of largely contiguous states.

The $462 billion-asset PNC Financial Services Group — which bought RBC Bank in 2011 and agreed in November to buy BBVA USA Bancshares — had the scale and financial heft to pursue both deals.

Splitting up the franchise could make sense to lure potential buyers such as Citizens, Key or M&T, even though there may be some branch overlap, industry observers said.

New York Community, where more than a third of the deposits are CDs, could benefit from HSBC Bank USA’s low-cost funding, Marinac said.

Canadian banks “can also be strategic when they want to be,” Marinac added, listing Royal Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce as possibilities.

Each bank mentioned as potential buyers declined to comment.

While HSBC’s plans are unclear, Kevin Swanson, an analyst at Hovde Group, said it looks as though the lengthy chill in bank consolidation is starting to thaw. But it remains to be seen when more deals will take place.

“I don’t think this solidifies any kind of M&A wave,” Swanson said. “But I do think one is coming and [an HSBC retail sale] could be part of it.”



 

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