In HSBC's Global Play, U.S. Will Act In A Supporting Role

When most of its U.S. restructuring is done next year, HSBC Holdings Plc's (HBC, HSBA.LN ) operations here may well be generating capital for the global banks' expansion elsewhere in the world.

"We are becoming much more disciplined about how we allocate capital, and that is one of the reasons why we allocate much more capital to faster-growing emerging markets," Niall Booker, chief executive of HSBC North America Holdings Inc., said in an interview Monday. "When you are making returns on equity of 20% in Asia and maybe slightly higher in the Middle East, that makes a lot of sense."

For a company that wants to focus on commercial customers that need an international bank for their cross-border business, and retail customers who travel and like to live in foreign countries, the United States remains an important market.

But HSBC no longer emphasizes the U.S. as a growth market, and is shrinking its U.S. consumer-lending businesses, which have been the fastest-growing part of U.S. banking.

HSBC has disclosed some serious restructuring plans in recent days. On Sunday, HSBC said it struck a deal to sell 195 upstate New York branches to First Niagara Financial Group Inc. (FNFG) for $1 billion. HSBC will continue to operate branches in cities including New York and Washington, D.C.

On Monday, the big London-based bank said it would cut 30,000 jobs to become more efficient.

Booker declined to specify how many of the job cuts would be in the U.S. "We've been reducing headcount in the U.S. for a considerable period of time. That restructuring continues" even after the branch sale. HSBC decided in 2009 to shutter its subprime consumer-lending business, closing the remaining 800 branches and cutting 6,000 jobs in the U.S.

Now, "we've got the [credit-]card business under review," he said. Capital One Financial Corp. (COF) is one of the businesses that made an offer to buy HSBC's credit-card business, people familiar with the matter have said.

HSBC also said Monday that its pre-tax profit in the first half of this year rose 3.3% from a year earlier, to $11.5 billion, though revenue remained virtually flat at $35.7 billion.

Whether the bank is going to release capital from the U.S. and when will depend how regulators feel about moving capital generated in the U.S. to other countries, how fast HSBC feels it might be able to grow the U.S. business that remains after its massive restructuring, and, of course, on improvement in the troubled U.S. mortgage business that has hurt HSBC badly.

HSBC's plan to expand in emerging markets is remarkably similar to that of Citigroup Inc. (C). "I have one other competitor, and that is Citi," Booker said. "They are a feared competitor, but there is only one of them."

Like Citi, HSBC had already decided to chop off businesses that don't fit with its more narrow banking strategy after the financial crisis.

When the heavy lifting for HSBC's U.S. restructuring is done in 2012, Booker said, HSBC will focus on four business lines: lending to middle-market companies in the U.S. that do business internationally; capital markets; wealth management; and retail banking in major metropolitan markets.

Booker said he is particularly optimistic about commercial banking. "Manufacturing [is] enjoying a little bit of a resurgence with a weaker dollar, with government policy focusing on the manufacturing industry and with real wages remaining very flat in the U.S."

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; [e-mail]