Bank says US unit is no longer sustainable; closure will cost $1.3b in goodwill charge
TOUGH TIMES: Mr Geoghegan reiterates that HSBC would make tough choices when it had to, emphasising that the subsidiary represented only 'a small part' of the bank's US business. The bank's earnings have been hit by its heavy exposure to the sub-prime mortgage market in the US.
NEW YORK - HSBC Holdings, the British-based banking giant, announced recently that it would close its sub-prime mortgage subsidiary in the United States, saying the unit was 'no longer sustainable'.
HSBC's earnings have been hit by its heavy exposure to the US sub-prime mortgage market, where home loans have been given to people with patchy credit histories.
HSBC said its closure of Decision One Mortgage will entail a goodwill charge of around US$880 million (S$1.3 billion) and a restructuring charge of US$65 million by year-end. About 750 Decision One employees will be affected by the closure, the group said last Friday.
'This is a small part of our US business,' said HSBC chief executive Michael Geoghegan. '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, a unit of subsidiary HSBC Finance, originates non-prime mortgages through brokers. The bank said it will still manage Decision One's US$349 million loan portfolio.
HSBC was the largest provider of sub-prime loans in the US last year, according to Inside Mortgage Finance, a real estate industry tracker, ahead of the US leaders in the domestic market, New Century 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.
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