cats63 wrote:My son applied for the hsbc secured card a few weeks ago and he just got a letter today saying , send a check and sign the enclosed forms so he was approved. He put on the application no employer no annual income. I guess capital one will own this account soon and they turned him down for the secured card 6 months ago. I don't know for sure if capital one will own this account.
I just closed my HSBC secured card. They did not know yet whether these accounts would transfer or not to Capital One.
They did say the first review for unsecured was at 18 months and then every 6 months. They did however add 1% rewards back in July, but I got a Household unsecured card with 2% rewards, so I closed the secured account.
Capital One Financial Corporation (COF - Analyst Report) has finally decided to acquire HSBC Holdings Plc’s (HBC - Analyst Report) U.S. credit card business. HSBC was trying to sell the unit since the middle of this year as part of its long-term strategy to reduce costs up to $3.5 billion by 2013and cut back retail banking.
Capital One announced a definitive agreement early Wednesday to buy the business for $32.7 billion, which is at a premium of 8.75% to par value of all receivables or about $2.6 billion (value as of June 30, 2011). The purchase will give Capital One more than $30 billion in its credit card portfolio.
The deal is expected to be completed in the second quarter of 2012 and is likely to bring high teens GAAP as well as operating earnings per share for Capital One in 2013. Also, an IRR of greater than 20%, return on invested capital of more than 25% and a 400 basis point improvement in return on tangible equity could be the outcome of the transaction in 2013.
Capital One anticipates realizing cost savings of about $350 million and incur restructuring costs of about $420 million due to this transaction.
HSBC’s U.S. credit card business is a strategic fit for Capital One as it has a proven track record and generates more than half its revenue from credit cards. The deal will definitely improve the credit card franchise of the company. Consequently, Capital One is expected to significantly gain from this transaction with low business execution risk.
Capital One expects its Tier 1 common ratio to be in the mid-9% range following the closure of the deal. The company expects to achieve this capital position through a combination of strong internal capital generation, balance sheet repositioning and a capital raise. Currently the company anticipates to raise about $1.25 billion capital prior before the deal is closed.
The deal will help HSBC earn an estimated post-tax gain of $2.4 billion.
For Capital One, it would be the second significant acquisition this year. In June, the company had announced a deal to acquire ING Direct USA, the online banking unit of Amsterdam-based ING Groep NV (ING - Snapshot Report), in a $9.0 billion stock-cum-cash deal.
From HSBC’s perspective, although profitable, the U.S. credit card unit is loaded with several riskier assets that the company had taken over while expanding its consumer lending business. These, in addition to the massive size of the credit card portfolio, were hindering HSBC’s divestiture plan.
HSBC acquired the credit card unit in 2003 as part of its $15.5 billion purchase of U.S. subprime mortgage lender Household International (HSBC Finance). Despite being profitable, the card business did not suit HSBC’s business structure. As a result, HSBC was looking for a suitable buyer to get a feasible price for the unit.
After many talks on the possible sale of its credit card business, in June, HSBC’s CEO Mr. Stuart Gulliver had announced that the company would shut down its U.S. credit card unit had it not been able to find a suitable buyer.
Wells Fargo & Company (WFC - Analyst Report) was also among the few companies interested in buying the unit. However, Capital One finally became the front runner.
The acquisition should bring long-term benefits for both companies. While after selling the unit HSBC will be able to better concentrate on its the emerging market strategy, Capital One is expected be able to drive shareholder value after buyingit.
Capital One currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, HSBC retains a Zacks #4 Rank, which implies a short-term Sell rating.
Read the full analyst report on COF
Read the full analyst report on HBC
Read the full analyst report on WFC
Read the full analyst report on ING
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