HSBC - HI Merge, Late Payments Up
It's official: HSBC Holdings, London, now owns Household International here, the third largest residential subprime servicer in the U.S.
In late March, after obtaining final regulatory and shareholder approvals, HSBC paid its $14 billion and took control of the unit whose forte is lending and servicing mortgages and issuing credit cards to consumers with blemished financials.
But what exactly will the "A" paper, blue-blood foreign bank do with Household?
For now, HSBC officials aren't saying. "We're not ready to comment on strategy," said a company spokesman. But one thing's for certain: HSBC and Household will have to deal with rising delinquencies.
In its last 10-K filing as an independent company, Household revealed that its mortgage delinquencies were on the rise, as were its credit loss reserves. According to year-end financial data, Household saw its real estate-related delinquencies (primarily residential loans) increase 49% over 12 months.
According to the filing with the Securities and Exchange Commission, Household had a real estate-secured delinquency ratio of 3.91% at Dec. 31, compared to 2.63% at the end of 2001.
The ratio is the "two month-and-over contractual delinquency ratio," according to the filing.
The 10-K also notes that Household bulked up its provision for credit loss reserves to $3.7 billion in 2002, compared to $2.9 billion in 2001, an increase of 28%.
At year-end, Household had real estate (primarily home mortgages) receivables of $45.8 billion, a 4% increase from year-end 2001. Among subprime servicers, just two firms are larger - Fairbanks Capital, Salt Lake City, which has receivables of $49.3 billion, and CitiFinancial, Baltimore, with $47.3 billion.
A spokesman for Household blamed the delinquencies and credit loss reserves on the soft U.S. economy and rising unemployment.
HSBC, whose chairman is Sir John Bond, paid about $28 a share to acquire Household. A year ago, Household's stock was trading at about $60 a share, but that was before the bad news hit.
In the first quarter of 2002, Household, very quietly - and at the behest of thrift regulators - added $1.2 billion in capital to its Illinois-based thrift subsidiary. Then, later in the year, it sold the thrift, Household Bank FSB.
Before year's end, Household also agreed to pay almost $500 million to settle predatory lending allegations in several states.
With Household in hand, it's likely that HSBC will enter the "non-status" market in the United Kingdom.
In a recent speech to shareholders,
Sir John said, "Looking to the future, the acquisition offers significant opportunities to extend Household's business model into countries and territories currently served by the HSBC Group ... "
Household CEO William Aldinger III also is in charge of HSBC's North American operations. During his career, Mr. Aldinger has worked at Citibank and Wells Fargo. He joined Household in 1994.
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