With all the regret and awkwardness of a one-night stand parting-of-the-ways between co-workers, HSBC announced today that spending $14 billion to buy subprime lender Household International wasn’t the best idea.
In fact, Stephen Green, HSBC’s chairman, said the London-based bank regrets the decision to purchase Household, which originated credit cards, auto loans, and mortgages to borrowers with less-than-perfect credit.
“It’s an acquisition we wish we hadn’t done with the benefit of hindsight, and there are lessons to be learned,” Green told reporters on a conference call today, according to Bloomberg News.
Is there a line item on a balance sheet for “Oops — Our bad?”
Since Household had survived many years as stand-alone entity, it makes me wonder if the problem was with Household’s business model or if the problem lies with the acquiring institution, HSBC. To often ‘doing deals’ and buying enities ‘to grow’ gets in the way of thinking about ‘Is this a business we, the management, really understand?’ and ‘Will it integrate well into our corporate culture and business structure?’ I don’t know…but my guess is that a stand-alone Household would be hunkering down and riding out the problems of this financial meltdown, but they would have stayed in business. We’ll never know now.
Having worked in the sub prime business on and off for many years, it still amazes me how quickly people forget that sub prime is and always has been centered around collections and recoveries, it rarely fits into the “normal” risk model and must be collected in a different way.
Jim — Having seen so many subprime lenders — whether it be in the mortgage, card, or auto market — close up shop during the past two years, I’m not as convinced as you are that Household would have survived on its own. Household would have likely stopped originating mortgages last year, resulting in a huge decline in the number of loans it services. Plus, Household would have little access to funding as a standalone company. It would not be able to issue enough securitizations or debt to keep itself afloat, even in a hunkered-down mode.
I agree with you that HSBC and Household were not the right fit for each other from the start, but I think it bought Household more time than if it were out there on its own.
My prediction for 2011 is 12,990,000.