HSBC Holdings PLC said its U.S. arm had its best showing in years in the first quarter. That could turn out to be great news for the global banking giant's operations south of the border.
Executives from HSBC's North American retail and consumer lending divisions said growing deposits, waning home mortgage losses and other positive trends in the States will free up capital that the corporate parent can dole out in potentially lucrative emerging markets.
That's not to say HSBC is writing off the U.S., where in recent years it has focused on drumming up business from wealthy people and companies with ties overseas while it gets its consumer losses under control. It is just that HSBC has no designs on getting aggressively bigger in the States for the time being as it eyes growth prospects elsewhere.
"While the American economy is improving, nobody can bet on that," said Brendan McDonagh, the chief executive of HSBC North America Holdings Inc. "The group has to look at: 'Where is the best place to invest?' "
Right now, two of those places are Brazil and Mexico, he said, where HSBC has allocated an unspecified portion of its U.S. capital for investment. HSBC's corporate lending and investment banking teams on the ground there have a "significant competitive advantage in winning transactions" over domestic banks thanks to its operations on Wall Street.
The recession has been tough on HSBC in the U.S.
HSBC has two main operations here: A retail banking division with about 480 branches — most of them in New York — called HSBC USA Inc., and a subprime lending arm called HSBC Finance Corp.
HSBC USA has performed relatively well through the downturn and all of its main business lines — retail, commercial, global and private banking — were profitable in the first quarter as impairment charges fell. The overall division earned $554 million compared with a loss of $89 million a year earlier.
HSBC Finance is the successor to Household International, which HSBC agreed to buy in 2002 and has regretted ever since. The unit, which is largely winding down as it runs off most of its bad mortgages and auto loans, swung to a loss of $603 million from earnings of $872 million.
In a positive development, the unit's credit costs fell as more people paid down their credit card and home loans and it ran off $5.6 billion in loans.
Also, HSBC's U.S. cards business — which extends across HSBC Finance and HSBC USA — earned $680 million in the first quarter after making $640 million in all of 2009.
McDonagh said "things are looking up" for HSBC in the U.S. as the consumer division winds down and HSBC USA's profits rise. He said there's no guarantee that the company will report similar results throughout the rest of the year, as consumer borrowing trends in the first quarter were helped by tax returns and the federal homebuying credit.
McDonagh also said HSBC has no plans to take advantage of its momentum in the U.S. by doing anything different than what it has been. HSBC said last quarter that it plans to open just six U.S. branches this year and that has not changed. It opened 18 in 2009 and added 125 new locations in the past five years in urban areas like Seattle.
Bert Ely, a banking consultant in Alexandria, Va., said HSBC's strategy in the U.S. makes sense from a global perspective. HSBC is similar to Citigroup Inc. in that it may see its best opportunities in other countries, he said, something that executives there have been vocal about. "Neither one of them has a big U.S. footprint the way Bank of America does, or JPMorgan Chase," he said. "Citi is like HSBC — they're very global."