HSBC withdrawing from US Retail – another UK business sturggling with the US

HSBC announcing that it is to sell its $30bn US cards book to Capital One comes hot on the heels of its annoucement that it has sold 195 branches to First Niagara Bank. The new CEO Stuart Gulliver in his strategy statement had made it clear that he would either sell HSBC’s US Cards and Retail Services business or close it down. He has chosen to do the former.HSBC will continue to grow its Premier retail banking business in the US, for the meantime.

Indeed it was Midland Bank’s disastrous acquisition of Crocker Bank (perhaps the name of the bank should have been sufficient a hint) that weakened its postion to such an extent that it resulted in HSBC acquiring Midland Bank, so the lessons were there for HSBC to see, however they were not heeded.

HSBC acquired Household in 2003. At that time Household was renowned for being a subprime lender and had had several legal cases to answer for scalping (charging exorbitant interest rates). At the time the Chairman of HSBC, John Bond, reassured investors that Household’s questionable history was behind it and that it was moving up into prime lending. One of the reasons that HSBC gave for acquiring Household was for the risk modelling tools, that were regarded as being market leading and would ensure Household had superior low default levels. This could be seen as a Gordon Brown moment (the end of boom and bust) for HSBC, particularly in retrospect when the billions of bad debt that has had to be written off as a result of Household are taken into consideration, for Household had not given up on the subprime market and continued to sell into that market for the high margins that could be charged.

HSBC is not the only UK bank to have had a painful lesson trying to become a major retail banking player in the US. Both Lloyds Bank and Barclays have had their fingers burnt in the past and neither seem keen to re-enter the US  retail banking market.

NatWest (now part of RBSG), racked up $1bn of losses on bad property deals when it acquired Bancorp in 1979 selling the business in 1995 to Fleet. RBSG went on to acquire Citizens Bank and Mellon under the leadership of Sir Fred Goodwin. Whilst the merged US operations have been seen to be slightly more successful, there is general agreement that the price paid for both of these was too high. It is also interesting that these two banks are more focussed on business than retail customers.

HSBC is just the latest of many UK businesses that have struggled to make it in US. Marks & Spencer acquired Brooks Brothers selling the business in 2001 for a third of the price it paid for it in 1988. Tesco, the UK’s most successful retailer continues to struggle with its Fresh & Easy brand in the US having lost £800m since its loss in 2007.

So what is it with UK businesses and the US? As George Bernard Shaw observed the US and the UK are “two nations divided by a common language”. This is as true now as it was when he said it. The challenge for British firms going to the US is that they are led into the false assumption that because the same language is spoken that what customers want, how they purchase andhow the markets work are the same as the UK. This is simply not true for retail or for retail banking. In banking the regulations vary from state to state, there are far more constraints on what retail banks can do, there is far more competition and the whole approach to securitisation of mortgages, as well all know now, is so very different from that in the UK.

It seems that when UK businesses go to the US, unlike if they were going to a country that they were unfamiliar with, they leave their commonsense on the airbridge before they go through immigration.

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