NEW YORK (Reuters) – HSBC Holdings Plc on Sunday said 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 expected on Monday to report first-half results. Analysts on average expect a pretax profit of $10.9 billion, compared with $11.1 billion a year earlier.
"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.
(Reporting by Jonathan Stempel; editing by Maureen Bavdek, Bernard Orr)
WASHINGTON (Reuters) – The terrifying prospect of a U.S. debt default has left a cloud over businesses already reeling from the economy's tepid performance, and likely left them reluctant to ramp up hiring in July.
A heated political battle over how to raise the nation's debt ceiling has helped make the once-distant prospect of a downgrade of the U.S. AAA credit rating a strong possibility. Even worse, investors are grappling with the unthinkable: an outright default on U.S. government debt.
The fight over the debt, which started with a refusal by some Republicans to lift the largely procedural debt limit without sharp cuts in government spending, comes with the U.S. economy already struggling to remain above water.
Data on second-quarter gross domestic product published on Friday showed the world's largest economy expanded at just a 1.3 percent annual rate in the April to June period. More worrying, revisions to the first quarter left annualized GDP at a 0.4 percent pace -- perilously close to a contraction.
The figures prompted some analysts to wonder whether market forecasts for an unspectacular gain of 90,000 jobs in July may be overly optimistic, following truly dismal readings for May and June. The jobs report is due on Friday.
"It certainly tempers my outlook, resets expectations," said Jason Ware, senior research analyst at Albion Financial Group in Salt Lake City. "If we're going to have any type of material uptick in private-sector employment, we're going to be growing faster than 1.5 percent."
The furor over the U.S. debt crisis has temporarily diverted attention from Europe's troubles, which continue to simmer nonetheless. Moody's Investors Service said on Friday it had placed Spain's ratings on review for a possible downgrade, citing funding pressure and a precedent set by the euro zone's debt package for Greece.
That rescue deal was supposed to calm contagion fears but does not appear to have done the trick. Borrowing costs for Italy, for instance, soared at the country's latest bond auction.
Austerity measures appear to be taking a toll on many of the economies they were meant to help, and a report on euro zone unemployment is expected to show a steady 9.9 percent jobless rate for the monetary union.
D-DAY AND THE R-WORD
Still, investors will continue to focus their attention on the more immediate and potentially catastrophic risk -- a non-resolution of the U.S. debt debacle that leads to a crippling government shutdown or even a debt default.
Most investors say the latter scenario remains highly unlikely since the government should have enough revenues to continue making bond payments for some time, particularly if it gives top priority to bond holders as expected.
But that doesn't mean recession risks are not rising.
"We continue to think that the federal government will be able to avoid a default, but will probably still lose its AAA credit rating," said Julian Jessop, economist at Capital Economics. "Default might also only be averted at the cost of a shutdown of non-essential government services that could tip the U.S. economy into recession."
A tense calm over the debt standoff has permeated the U.S. Treasury bond market, which continued to rally in the latest week, pushing 10-year yields to 2.80 percent, their lowest level since November.
Before Friday's U.S. employment number, economists will eye two other key indicators: the Institute for Supply Management's factory survey and the ADP employment report, which is used as a rough guide to the government's broader gauge.
The ISM index is seen easing somewhat, to 54.9 from 55.3, according to a Reuters poll. On ADP, economists are looking for a gain of about 100,000 new private-sector jobs -- in keeping with their overall payrolls forecasts.
Officials at the U.S. Federal Reserve have continued to indicate a high reluctance to embark on any new program for monetary easing. But if the job market enters another rut, the pressure for renewed action could mount. The Fed next meets to set policy on August 9.
(Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler)
HOUSTON (Reuters) – U.S. offshore oil and natural gas producers are restarting production operations with Tropical Storm Don long over, data from Gulf of Mexico energy regulators showed on Sunday.
The U.S. Bureau of Ocean Energy Management said 6 percent, or 84,072 barrels per day, of oil output remained offline, down 4.9 percentage points from Saturday.
BOEM also said 3.5 percent of daily natural gas output, or 186 million cubic feet of natgas, remained shut in, down 3.1 percentage points from Saturday.
Among those that had restarted all shut production was Anadarko Petroleum Corp, which had closed and fully evacuated six Gulf platforms.
"All back up and running," Anadarko spokesman John Christiansen said.
BOEM's statistics were based on reports from 17 companies on Sunday, the agency said.
Some producers, including Shell Oil Co, had yet to report publicly whether they had restarted shut production.
Chevron Corp said on Sunday it had restarted oil and gas production shut in for the storm and was re-staffing Gulf operations. The company never disclosed how much output was shut or how many workers were evacuated.
Exxon Mobil Corp said it was returning evacuated workers to Gulf operations, but about 8,000 barrels per day of oil and 50 million cubic feet per day of natural gas output remained shut in.
Don was the first threat to Gulf energy infrastructure in the 2011 hurricane season, but the storm's path came nowhere close to the basin's major concentrations of oil and natural gas platforms.
A westward-moving weather system about 575 miles east of the northern Windward Islands had a "near 100 percent" chance of becoming a tropical cyclone in the next two days, the National Hurricane Center said on Sunday. That system will be named Emily if it strengthens into a storm or hurricane.
The Gulf's daily output is about 1.4 million barrels of oil and 5.2 billion cubic feet of natgas, according to BOEM data.
Don hit shore late on Friday 40 miles south of Corpus Christi and quickly dissipated.
The three major refiners with plants in Corpus Christi -- Valero Energy Corp, Flint Hills Resources and Citgo Petroleum Corp -- reported no Don-related disruptions.
Overall, the Gulf accounts for 30 percent of U.S. oil production and 12 percent of natural gas output, according to BOEM. The Gulf Coast also is home to 40 percent of U.S. refining capacity, and 30 percent of natural gas processing plant capacity.
(Editing by Dale Hudson)