HSBC recently announced that it would sell its U.S. credit card portfolio to Capital One for $2.6 billion, handing over subprime loans and retail credit cards that total $30 billion. This deal comes on the heels of another major Capital One purchase: the young bank bought ING Direct in July.
The move has been hailed as a strategy by Wall Street: in a week when bank stocks were clobbered, Capital One’s rose 3.5%. The two deals, taken together, represent a deft adaptation to the post-2008 lending and legislative environment. Investors and regulators want banks to grow, but even historically low interest rates have met a tepid response from debt-burdened consumers. ING is entirely online, allowing Capital One access to deposits without the traditional costs of a brick-and-mortar bank. And although consumers are paying back more loans than they are taking out, the high interest rates on credit cards for bad credit and retail credit cards make for high returns.
What will happen to HSBC customers?
Former ING customers were not happy with Capital One’s acquisition. They feared that the bank’s ethos of no-frills, low-cost, customer-oriented service wouldn’t survive a takeover. The Southwest Airlines of direct banking did have to lay off a few workers, but for the moment, the accounts are unchanged.
At the moment, both lenders are keeping quiet about what will happen to Household and Orchard Bank customers. Capital One Secured card is a direct competitor to the HSBC subsidiaries’ offerings, so one or the other might be on its way out. While Capital One is more flexible and generous toward subprime borrowers than most U.S. banks, HSBC distinguished itself as one of the best options. The single assurance that consumers received: no changes would be made until the sale closes in 2012.