HSBC Holdings PLC has said it is not interested in buying a U.S. banking company right now, but it continues to expand here organically and has sought permission to enter two retail markets.
In late July the London company applied to the Office of the Comptroller of the Currency to open seven branches in Connecticut and one in Chicago. OCC records show that a decision on the applications has not been made.
"I don't think it would resolve much for us" to buy a U.S. retail bank, Michael Geoghegan, HSBC's chief executive, said in response to a question phoned in by American Banker during a July 31 earnings press conference from London for the U.S. news media.
HSBC's North American headquarters and consumer finance unit, HSBC Finance Corp., are based in the Chicago suburb of Prospect Heights, and HSBC Finance Corp. already has consumer finance offices in Connecticut.
Simon Adamson, an analyst with CreditSights Ltd. in London, said: "I think it's simply that HSBC sees the U.S. as one of its main growth markets and, unlike, say, in the U.K. and Hong Kong, it has plenty of scope for expanding its franchise there. They feel comfortable with retail banking."
HSBC did not return phone calls this week.
Citigroup Inc., one of HSBC's chief international rivals, said earlier this year that it too wanted to expand in Connecticut. At a February analyst conference it sponsored, its chairman and CEO, Charles O. Prince, said Citi has a good cross-selling opportunity in the state because it has plenty of customers there.
"In Connecticut, we have nine - count them, nine - retail bank branches, and 15 consumer finance offices," Mr. Prince said. "And yet, in Connecticut, we have more than 500,000 credit card customers … more than 40,000 mortgage customers, and more than 24,000 student loan customers."
OCC records show that the $1.6 trillion-asset Citi has yet to open any branches in Connecticut since February, but on July 28 it got approval to open eight in the Boston area and five in the Philadelphia area.
HSBC, which has assets of $1.7 trillion, said the online deposit account it unveiled in late 2005, HSBC Direct, has gathered $4.8 billion of deposits and helped HSBC fund loans in the United States. During the earnings conference, however, HSBC said its adjustable-rate mortgage portfolio's credit quality could suffer as interest rates on the loans reach reset dates.
Mr. Adamson said that if any credit problems arise, they probably would not affect HSBC's branching plan. "I don't think the problems they highlighted in parts of their mortgage book are serious enough to dictate strategic moves," he said.
Robert Law of Lehman Brothers Equity Research wrote in a research note issued Aug. 1 that any mortgage deterioration in the United States probably would not hurt the parent company.
Sunil Garg of J.P. Morgan Chase Securities Inc. said in an Aug. 1 research note that the credit quality of HSBC's U.S. adjustable-rate mortgage portfolio "remains a pressure point and needs careful monitoring." JPMorgan Chase & Co. Inc. and Lehman Brothers Inc. have done investment banking work for HSBC within the past year.
