HSBC Holdings, the British-based banking giant, announced Friday it will close its sub-prime mortgage subsidiary in the United States, saying it was "no longer sustainable." HSBC Holdings's earnings have been heavily hit by its heavy exposure to the troubled US sub-prime mortgage market, where home loans are given to people with patchy credit histories.
HSBC said its closure of Decision One Mortgage will entail a goodwill charge of around 880 million dollars and a 65-million-dollar restructuring charge by the end of the year.
"This is a small part of our US business," said Michael Geoghegan, chief executive of HSBC Holdings plc.
"It's no longer sustainable and not the right place to allocate capital in the future. We said we would make tough decisions and we have done exactly that."
Decision One Mortgage, a unit of subsidiary HSBC Finance Corporation, originates non-prime mortgages through brokers. The bank said it will continue to manage Decision One's loan portfolio, which totals 349 million dollars.
HSBC was the largest provider of sub-prime loans in the US in 2006, according to Inside Mortgage Finance, a real-estate industry tracker, ahead of the US leaders in the domestic market, New Century Financial and Countrywide.
The HSBC decision comes as rising interest rates and falling house prices have triggered a spike in foreclosures by borrowers with already stretched finances.
The group said HSBC Finance will focus on originating and servicing loans through its consumer lending branch network under the HFC and Beneficial brands.
Approximately 750 Decision One employees will be affected by the closure, the group said. - AFP /ls
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