HSBC subprime bad loans continue to hurt

All is not rosy at HSBC. Bad debts in the US continue to rise, while regulators extended the open comment period on HSBC’s proposed sale of the banks credit card business to Capital One.

HSBC has so far said it will sell or retreat from 14 countries. They include the sale of its U.S. credit card business and branches in New York state, retail businesses in Russia, Poland and Chile, and its Canadian brokerage business. It is exiting Georgia. It has also put its $1 billion general insurance business up for sale.

But it is Subprime and predatory lending that continues to haunt HSBC in the US, to the tune of about $50 Billion dollars (USD).

HSBC became one of the biggest providers of U.S. mortgages for customers with a weaker credit history after its purchase of Household Finance eight years ago. It has closed the business and is running down its $50 billion loan book.

HSBC on Wednesday reported a 36 percent fall in third quarter profits as the euro zone debt crisis hit investment bank income, while strains in the U.S. economy saw bad debts there jump by almost $1 billion, the first rise in two years.

How much of HSBC’s credit card business is also bad? The answer lies in the fact that many businesses offer financing with two finance companies, with HSBC taking those who fail to get financing with the most preferred source. In other words HSBC is the last resort to get the sale.

A U.S. banking regulator slowed Capital One Financial’s growth plans on Monday when it announced it would reopen the comment period for the bank’s takeover of HSBC’s U.S. credit card business.

The Office of the Comptroller of the Currency gave the public until December 19 to comment on the $2.6 billion deal.

Consumer groups say acquiring HSBC’s $30 billion credit card portfolio would only deepen Capital One’s “monoline” focus on credit cards, posing a risk to the financial system

Capital One, which announced the HSBC deal in August, says its expansion will prove beneficial. That remains to be seen, but Capital One’s plans go far beyond credit cards.

The OCC’s move comes less than two months after the Federal Reserve held a series of hearings on Capital One’s proposed $9 billion takeover of ING Groep’s U.S. online banking unit.

The Fed reopened the comment period on that deal, a week after Representative Barney Frank’s wrote to the central bank urging more scrutiny.

Neither regulator has indicated when it will make a decision on Capital One’s proposed acquisitions.

Meanwhile HSBC continues to pay the price for shoddy acquisitions and predatory lending.