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"The biggest risk for HSBC is not what they paid, but the character of the business they're buying," E. Reilly Tierney, an analyst with Fox-Pitt Kelton in New York told The Deal in 2003. As recent earnings show, Household turned out to be toxic. Overall, the addition of Household eventually translated to subprime loan-loss provisions of $17.2 billion in 2007 and $10.6 billion in 2006 for HSBC. The British lender has been able to remain profitable recently, but it's likely regretting it pulled the trigger on a deal for the troubled lender. The impact of the Household deal on the latest earnings numbers speak for themselves. HSBC on Monday announced a $2.89 billion pretax loss in its North American operations. Most of the losses could be traced back to business assumed from the Household addition. HSBC also says it won't even make new U.S. consumer auto loans. Overall, the loss contributed to the British bank's decline in profit for the first six months of 2008 by 29% to $7.7 billion. Now, HSBC is looking to steer more of its business back to Asia to soften the blow from its U.S. business. With several deals over the last few years in the region, including one in the works for a majority stake in Korea Exchange Bank, could this eagerness to return to its roots be an overzealous knee-jerk that haunts them down the road? Possibly. After all, China and India have been growing at steady paces, but some have pointed to a possible bubble. Already, China has shown its weakness as pretax profit for HSBC in China fell 41% to $907 million. Meanwhile, shares in Korea Exchange Bank, HSBC's newest target, have fallen as much as 12%. For now, HSBC remains devoted to an Asian expansion, hoping to forget its American failure five years ago. -- Gerald Magpily See story from BloombergSee Dealscape: HSBC to review KEB deal See Dealscape: HSBC looks East, again See TheDeal.com: Doubts still haunt Household-HSBC Categories Deal Video
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It's fair to say you often get what you pay for. Back in 2002, British bank HSBC Holdings plc rolled the dice in what most analysts were saying was a risky bet for the largest consumer finance company at the time, Household International Inc., now known as HSBC Finance Corp. HSBC paid $15.3 billion in cash and stock for a company that specialized in auto finance, subprime mortgage lending and private label credit cards.
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