Bad Economy Will Force HSBC Credit Card Arm to Drop US Operations

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In the midst of all the hype about the credit card bill and the continuing economic recession in the US, HSBC credit card arm is now under fire. The beginning of the end for HSBC started when it acquired Household bank nearly 6 years ago. Its brave entry to the US turf started to turn sour as unsettled loans continued to pile up. Ultimately, its accumulated bad debt and the intensifying financial problems might lead HSBC to pull its business out from the US credit card market. HSBC gained strong revenues last year, but considering the bad debts that the bank has incurred due to delinquent borrowers, the future of HSBC in the US still remains obscure. Michael Geoghegan, Chief Executive of HSBC said in the annual shareholder meeting that the rest of 2009 and 2010 will be very rocky for the bank if they continue operations in the US. Since nearly 40% of HSBC credit cardholders are from the US territory, risks will continue to plague the bank if a pullout of accounts will not be done in time. Despite this, the bank still proves to be in a better shape compared to some of its competitors who are taking much of the beating of the economy. This is partly because of the bank’s strong liquidity and well-maintained balance sheet. But considering the volatile nature of the US economy, even these supposed assets seem irrelevant. Regarding the issue of pulling the plug on the HSBC credit card arm in the US, the shareholders of the bank agreed on making the final decision within the next 18 months while observing how the economy and the effect of the credit card bill would affect the business. But definitely, once bad debts continue to do a sharp rise and if financial conditions in the country do not leverage revenues, HSBC should quit the US market. Whether leaving the US credit card market would be a huge liability for the bank is questionable. The sky-high bad debts compounded by the mortgage dilemma in the US are almost as much as the earnings the company is making in the country. This plus the amount that HSBC has to shell out to cover the debt would prove that this banking institution is not making much money in the US despite the fact that 40% of HSBC credit cardholders are coming from the US. Even if HSBC drops operations in the US, they could make more profits by focusing efforts and capital on other countries. In fact, the HSBC credit card arm is about to do organic expansion and growth by founding 100 branches in China by the end of 2009.A Computer Engineering graduate and loves to travel. Reading current news in the internet is one of his past times. Taking pictures of the things around him fully satisfies him. He loves to play badminton and his favorite pets are cats.

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ABOUT THE AUTHOR

A Computer Engineering graduate and loves to travel. Reading current news in the internet is one of his past times. Taking pictures of the things around him fully satisfies him. He loves to play badminton and his favorite pets are cats.
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