The head of HSBC Holdings PLC's North American arm said the financial meltdown has created an opening for his division's international banking strategy in the United States.
Brendan McDonagh, HSBC North American Holdings Inc.'s chief executive, said large U.S. banking firms appear to have lost an edge in the cross-border market as they deal with thorny problems at home.
"To some extent, they have refocused and reprioritized on their domestic capabilities and less so on their international capabilities, which has provided us with an opportunity," McDonagh said in an interview Tuesday with reporters to discuss HSBC's quarterly results.
His company has sought to seize on that opportunity by opening 20 branches this year in U.S. cities that have a lot of immigrants and international businesses, and it plans to open five or six more branches next year, he said.
HSBC North America, as a subsidiary of a foreign bank, is an anomaly of sorts in the U.S. banking market. It is the fifth-largest banking company, at $384 billion of assets, but it tends to have a lower profile than smaller outfits like U.S. Bancorp and PNC Financial Services Group Inc. That is partly because of its relatively small retail bank, which has about 480 branches, most of them in New York. (PNC has 2,600 branches.)
HSBC has also shied away from going to toe to toe nationally with money-center banks like JPMorgan Chase & Co. and Bank of America Corp., though it competes heavily with them in the Northeast. Instead, it has opted to attract business from people and corporations with ties overseas that live in international hubs like Miami and Seattle.
Some industry experts said HSBC's U.S. banking strategy could be hit or miss in the long run.
Suzanne Moot, a consultant with M&M Associates, said the number of people and businesses in this country that need a bank with international reach is relatively small. Large corporations that do business overseas also tend to use a lot different banks, she said.
"While it is certainly a strategy that makes sense given their heritage and their geographic reach, it would surprise me if it's really what's driving their business results," Moot said. "The market segment that cares about international activity is small both in the consumer banking and the business banking arenas."
Bert Ely, an independent banking consultant, said HSBC's strategy is sound, though its success will depend on how well it can attract and retain clients with an international bent. There is a case to be made that it can better service a customer with overseas reach than a regional company like BB&T Corp., or even a larger player like Wells Fargo & Co., he said.
"The strategy sounds good, but the issue is going to be on the execution," Ely said. "It becomes a challenge of how to capitalize on their international capabilities."
McDonagh said his company is busy "carving out this niche" as a top provider of international lending, trading and depository services in the United States.
There are signs that its strategy is bearing fruit. HSBC Bank USA, the U.S. retail arm, swung to a profit of $161 million in the quarter that ended Sept. 30 after posting a $136 million loss a year earlier, helped by a strong showing in credit cards and continued profitability in commercial banking.
Its troubled U.S. consumer finance arm, HSBC Finance, which is shutting down, continued to bleed money. It posted a loss of $1.129 billion, after recording a loss of $271 million a year earlier. The division's impaired loans fell for the first time since 2006 in the quarter, a sign that the U.S. economy is on the mend.
