HSBC USA Inc. said first-quarter profits rose 31%, to $159 million, as the acquisition of Republic New York Corp. boosted fee income from private banking and other activities.
The acquisition, which was completed in December, more than doubled the asset size of New York-based HSBC USA, to $86.4 billion. It also made the company the third-largest depository institution in New York State, with $54.2 billion of deposits, two million retail customers, and 120,000 commercial and institutional customers.
The banking company is a subsidiary of London's HSBC Holdings PLC, which has been aggressively expanding abroad. Last month HSBC announced a joint venture with Merrill Lynch & Co. to provide online brokerage and banking services in markets outside the United States. Last week HSBC said it would buy the Panama branch operations of Chase Manhattan Corp. and fold them into its North American unit.
On Monday, HSBC lost its bid for Mexico's Grupo Financiero Serfin SA, which will be bought by Banco Santander Central Hispano SA for $1.86 billion.
Nevertheless, analysts said HSBC would probably continue to seek deals to bolster its presence outside the United Kingdom. "They may be looking for a broader deposit base" in the United States, said Tom Burnett, an analyst who tracks companies involved in deals for New York-based Merger Insight. "I think they may have one big one left to do in the U.S."
The banking company went after Republic New York Corp. for its expansive private banking operation, which caters to individuals who have more than $1 million of assets to invest. The $9.8 billion deal closed shortly after the death of Republic's founder and patriarch, Edmond J. Safra, in a mysterious early December house fire in Monte Carlo.
Even in Mr. Safra's absence, private banking continued to thrive in the first quarter. Trust income rose 60%, to $59 million, and funds under management totaled $45.5 billion. Fees from service charges on deposit and other accounts rose 50%, to $43.5 million. Total fee income rose 83%, to $222.6 million. Expenses doubled, to $474 million.
HSBC said that revenues were up modestly from the two companies' year-earlier totals, and that expenses - excluding acquisition-related charges and other one-time items - were down.
Republic took a $97 million pretax charge in last year's first quarter and laid off 10% of its employees in response to sharp losses from the Russian financial crisis in the fall of 1998. The charge shook Wall Street's confidence in the company, which had long cultivated a conservative reputation. Republic vowed at the time to focus on private banking and get out of riskier market-related activities that contributed to the losses from Russian investments.
In a press statement Monday, HSBC said deposits remained stable in this year's first quarter and businesses like private banking posted strong results.
"Republic and HSBC are complementing each other well," said Youssef Nasr, chief executive officer of the combined institution. "Customer retention is strong, and we are on target to achieve the levels of cost savings we announced originally."
HSBC has often been mentioned as a potential white-knight bidder for New York's Dime Bancorp, which has been struggling to fend off a hostile $1.9 billion bid from North Fork Bancorp. of Melville, N.Y.
Increasingly, however, Mr. Burnett and other analysts say HSBC now seems less likely to assume that role. For one thing, HSBC is busy integrating Republic, Mr. Burnett said. For another, Dime's customer base of middle-and working-class people would not mesh well with the former Republic's more upscale clientele.
Another white-knight candidate, ABN Amro, seems to have taken itself out of the running for Dime. Harrson Tempest, the chairman of ABN Amro North America, a Chicago-based unit of the large Dutch bank, told the Reuters news agency Friday that he was more interested in expansion in the Midwest.
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