September 23, 2020

HSBC to Exit Canadian Consumer Unit

By: Zacks Equity Research

After failing to find a buyer for its Canadian consumer finance business, HSBC Holdings Plc. (HBC) has decided to shut this unit. The closure of this particular division will lead to nearly 500 job cuts.

HSBC’s decision to exit the consumer finance business will impact 75 HSBC Finance offices in Canada. The unit’s main operations consisted of prime and subprime mortgages, unsecured loans as well as a private-label credit card unit, HSBC Retail Services Inc.

HSBC stated that the unit will stop taking new loan applications and would wind down all the offices as soon as it is practically possible. However, the company would continue to service and collect the existing collectable loans.

Also, HSBC will continue to operate its private-label credit card programs with merchants, including Brick, Yamaha and Michael Hill, till the end of the notice periods. Further, there will be no impact on HSBC Financial’s medium-term notes. These notes will be paid as per their scheduled maturity in May 2012.

Moreover, the closure of the consumer finance unit will not have any impact on HSBC’s commercial and retail banking, wealth management and capital market businesses in Canada. The company had acquired the consumer finance unit in Canada as part of its buyout of U.S.-based Household International in 2003.

Though the consumer finance unit was profitable, it was not a strategic fit for HSBC. Therefore, it became necessary for the company to divest this unit. However, finding a buyer became tough in the present economic environment as new capital requirement regulations made the companies hold more capital than assets.

The closure of the Canadian unit is a part of HSBC’s long-term strategy to revamp its operations for stabilizing the capital levels and improve efficiency. Last year in May, the CEO of the company had announced plans to reduce the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of HSBC’s global business. Further in August 2011, HSBC had announced its plan to trim down the workforce by 30,000 in the next two years.

This is not the first time that HSBC is restructuring its operations in Canada. Earlier in September 2011, the company had announced the sale of its Canadian retail brokerage business to National Bank Financial, a unit of National Bank of Canada (NA), for C$206 million ($208 million).

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