Surprise! HSBC Buying Household

In a deal that caught the mortgage market by surprise, overseas banking giant HSBC Holdings agreed on Thursday to pay $13 billion for Household International, Prospect Heights, Ill., the largest player in the subprime residential niche.HSBC, the parent of HSBC Mortgage, Depew, N.Y., will gain access to more than 1,400 retail outlets, $49 billion in housing receivables (all subprime), and all the headaches that go along with B&C lending. Though Household's sale is the largest subprime deal in terms of receivables, it pales in comparison to the $31 billion that Citigroup paid two years ago for then-subprime-giant Associates First Capital, which had just 1,000 branches and $28 billion in mortgage receivables. Legg Mason analyst Chris Brendler told MortgageWire that HSBC is getting a "steal," but added this caveat: "unless there's some credit problems buried in there that we don't know about." He said that a few years ago Household chairman William Aldinger was asking north of $75 a share for the company, but now "they're getting less than $30." Recently, Household agreed to pay almost $500 million to settle predatory lending charges brought by several states. Its stock had been trading near a 52-week low (until Thursday) and speculators have raised questions about its funding costs and its ability to make future bond payments. In trading late Thursday morning, its share price was up 25% to $28 a share, still far below its 52-week high of $63 established in the spring.