On May 1, 2012, Capital One completed its acquisition of the majority of HSBC’s United States credit card business for a reported $2.6 billion, adding definitiveness to a sale that caused a stir among consumers following its tentative announcement in August 2011.
The deal was originally announced less than two months after Capital One, currently the ninth largest bank in the United States by total assets, bought ING’s American online banking division, ING Direct USA, for $8.9 billion. This transaction itself drew consumer criticism over concerns that fees would rise and customer service would worsen under new ownership, and the HSBC sale only served to fan these fires with worries that Capital One was another “too big to fail” banking institution in the making.
Nevertheless, the sale went through, with Capital One giving HSBC $31.3 billion in cash to cover the outstanding balances of the credit card accounts it is shipping Capital One’s way in addition to the aforementioned $2.6 billion sale premium. Capital One plans to pay with cash freed up via balance sheet repositioning related to the ING Direct sale.
With this move, Capital One, which already garners more than half of its revenue from its credit card division, is free to grow unencumbered by a stagnate U.S. lending market. HSBC, the world’s fifth largest bank, can in turn concentrate on markets trending more upward, including U.K. consumer banking.
Interestingly, HSBC is neither selling Capital One the totality of its U.S. credit card business, nor ceasing to issue credit cards in the United States. Prior to the sale, HSBC issued credit cards in the US through two distinct subsidiary companies: HSBC Finance Corp. and HSBC USA. Capital One purchased HSBC Finance Corp., which includes the popular brand names Orchard Bank and Household Bank as well as HSBC’s suite of co-branded cards, such as the Best Buy Credit Card and the GM credit card. HSBC USA will continue to offer some credit cards, though it too has been depleted, with HSBC having shipped nearly one-third of the HSBC USA credit card operations as well as its bank branches in upstate New York to First Niagara Financial Group, Inc.
“When First Niagara completes its acquisition of the HSBC branches, the regional bank will have an enhanced leadership position in the Northeast, with nearly 430 locations, $30 billion in total deposits, $38 billion in assets and more than 6,000 employees serving consumers, businesses and communities across New York, Pennsylvania, Connecticut and Massachusetts,” according to a First Niagara press release. “The transaction will also provide First Niagara with number-one retail market share across Upstate New York, virtually doubling its number of branches in New York State to more than 200, stretching from Buffalo to Albany and down through the Hudson Valley.”
Most consumers, however, will be less concerned with the details of these acquisitions than what they mean for their favorite credit cards, like the Orchard Bank Secured MasterCard – one of the most affordable secured cards on the market given its low 7.99% APR and lack of an annual fee during the first year.
While Capital One is one of the only major card issuers to cater to people of all credit levels, with an acquisition typically comes a number of changes, and fee increases for the Orchard Bank Secured Card in particular would leave a substantial void in the market and make already tough times that much tougher for inexperienced consumers and those whose credit was damaged during the financial downturn.
Of course, Capital One has not yet announced specific plans for HSBC’s current offerings, and only time will tell how things play out, but we can expect consumers with damaged or no credit to flock to this card while the current offer still stands.
Needless to say, we’re in for some significant changes following this major acquisition, and the next few months should prove quite interesting.