HSBC buys into US sub-prime

In a deal that took the US mortgage market by surprise, banking giant HSBC Holdings last week paid $13bn for Household International, Illinois, the largest player in the sub-prime residential niche.

HSBC will gain access to more than 1,400 retail outlets, $49bn in housing receivables, and all the headaches that go along with B&C (sub-prime) lending.

Even though Household&#39s sale is the largest sub-prime deal in terms of receivables, it pales in comparison to the US$31bn that Citigroup paid two years ago for then sub-prime giant Associates First Capital, which had just 1,000 branches and $28bn in mortgage receivables.

Legg Mason analyst Chris Brendler told Mortgage Strategy that HSBC is getting “a steal…unless there&#39s some credit problems buried in there that we don&#39t know about”.

He said that, a few years ago Household chairman William Aldinger was asking north of $75 per share. “Now they&#39re getting less than $30.”

Recently, Household agreed to pay almost US$500m to settle predatory lending charges brought by several states. Its stock has been trading low and analysts have been raising questions about its funding costs and its ability to make future bond payments.