09/21/2012

HSBC’s Personal Loan Book Up for Grabs

HSBC is preparing to auction off a large portfolio of unsecured consumer loans that are seen as ripe for securitization.

The London bank plans to sell the $4.7 billion package in a single shot by yearend, although sources suggest that the process could drag into 2013. The credits — written to finance personal purchases as wide-ranging as furniture and swimming pools — have a maximum balance of about $15,000 and typical interest rates of about 18%.

HSBC is offering the loans as part of ongoing efforts to extract itself from the U.S. consumer-lending business following the shutdown of its HSBC Finance unit. That operation began forming with HSBC’s 2003 purchase of Household International and entered a credit-crisis-induced unwinding process in 2009, including last year’s sale of its $30 billion credit-card operation to Capital One.

In their heyday, Household and HSBC Finance offered a full suite of personal loans, mortgage products, credit cards and auto loans. Much of the activity was funded through term securitizations and multi-seller commercial-paper conduits, with the unsecured-loan division kicking in eight term transactions totaling $6.4 billion from 1995 to 2006.

The winning bidder for HSBC’s unsecured-loan portfolio is viewed as likely to raise the capital needed for the purchase by securitizing more of the accounts. That’s based partly on expectations that bond investors would flock to such offerings — drawn in by the promise that the accounts’ high interest rates would be reflected in generous yields and the fact that personal-loan paper has been something of a rarity in recent years.

Indeed, the last widely distributed deals to come from the asset class in the U.S. were three issues totaling $1.8 billion that HSBC Finance completed in 2006.

Possible buyers include banks and specialty lenders in the U.S., with sources pointing to Springleaf Financial as a candidate. Financial institutions in Europe could place bids as well, given that they’re more used to funding unsecured loans via securitization. One candidate from that group is Credit Agricole Consumer Finance.

Kevin Angeles is overseeing the unwinding of HSBC Finance from the bank’s Chicago office. Michael Banchik is handling the unsecured-loan auction. The buyer would have the option of hiring HSBC to service the portfolio.

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