HSBC Holdings Plc said on Sunday it will shed nearly half of its underperforming U.S. branch network, selling 195 branches to First Niagara Financial Group Inc for about $1 billion, and closing 13 others.
The all-cash sale to First Niagara covers more than 40 percent of HSBC's roughly 470 U.S. branches, including 183 in upstate New York, six in New York City suburbs and six in Connecticut. It also includes $15 billion of deposits, $2.8 billion of loans and $4.3 billion of assets under management.
Following the transaction, Buffalo, New York-based First Niagara expects to be significantly larger, with about 450 branches, $38 billion of assets and $30 billion of deposits. It expects to divest some branches to meet antitrust concerns. An early 2012 closing is expected, pending regulatory approvals.
HSBC Chief Executive Stuart Gulliver in May set plans for Europe's largest bank to slash $3.5 billion of costs by cutting back in retail banking and selling its U.S. credit card unit, which has more than $30 billion of assets.
The bank has been criticized for spreading itself too widely, with roughly 95 million customers and 300,000 employees in 87 markets, without sufficient regard for profitability.
Forty-two percent of HSBC businesses are returning less than its 11 percent cost of capital, and the bank has said it will exit Russia and Poland.
HSBC is due to report first-half results on Monday. Analysts on average expect a pretax profit of $10.9 billion, compared with $11.1 billion a year earlier.
The bank is also expected to say it will cut thousands of jobs on Monday, several media outlets reported, citing sources. The cuts, first reported by Sky News last week, could amount to about 10,000, the reports said.
RECORD OF UNDERPERFORMANCE
In May, HSBC said its U.S. banking unit HSBC Bank USA had a record of underperformance, and that it would focus its operations on U.S. clients with international business and non-U.S. clients with business in the United States.
HSBC is committed to the U.S. and leveraging our international network and skill-set, which are our competitive advantages, Niall Booker, chief executive of HSBC North America, said in a statement on Sunday.
The 13 branches that HSBC plans to close are located in Connecticut and New Jersey, and are near other HSBC branches. HSBC has about 370 branches in New York.
The bank did not immediately return requests on Sunday for further comment.
Other bidders for the branches included KeyCorp and M&T Bank Corp, while bidders for the credit card unit have included Capital One Financial Corp and Wells Fargo & Co, people familiar with the matter said earlier in July.
HORRIBLE TIME TO DO ACQUISITIONS, OR NOT?
First Niagara Chief Executive John Koelmel in an interview said his bank expects to divest 20 percent to 25 percent of the 195 HSBC branches to satisfy regulators and reduce overlap.
We have staked out a footprint that runs from Buffalo to Boston to Philly and back to Pittsburgh, he said. It is all about having meaningful presence in the markets we choose to serve.
Koelmel also said he was sensitive to valuations, especially given that the transaction is all cash, at a time of uncertainty about the economy and market environment.
You can argue that this is a horrible time to do anything: Washington can't do anything, and markets are in a state of high alert, he said. It's somewhere between a mess and an embarrassing train wreck. I'm always one who believes that in the private sector we have to have the courage to lead in spite of that. We can't be unduly deterred by what the markets in general are doing.
First Niagara expects the transaction to boost operating earnings, after merger costs, by 10 percent to 11 percent in 2012. It plans to issue $750 million to $800 million of stock and $350 million to $400 million of debt before the closing.
Most of the 1,900 workers at the 195 HSBC branches are expected to keep their jobs, including at branches that are sold, First Niagara said.
First Niagara said it was advised by Goldman Sachs & Co, Sandler O'Neill & Partners LP and the law firm Pepper Hamilton, while HSBC was advised by its own investment bankers, JPMorgan and the law firm Sullivan & Cromwell.
Shares of First Niagara closed Friday at $12.25 on the Nasdaq.
(Additional reporting by Megan Davies; editing by Maureen Bavdek, Bernard Orr)