May 5, 2015 / 2:58 PM / 3 years ago

Overhaul, not sale, on the cards for HSBC's U.S. arm

LONDON, May 5 (Reuters) - HSBC is set to extend a six year overhaul of its U.S. business to revive its fortunes rather than add it to the 77 businesses sold in the past four years, the British bank’s boss said on Tuesday.

HSBC Chief Executive Stuart Gulliver has said he could sell underperforming businesses in the United States, Brazil, Mexico and Turkey if they cannot be turned around.

Although no decisions had yet been taken on their future, Gulliver said the bank was likely to remain in the United States given the importance of dollar clearing for its trading business as well as providing access to U.S. companies.

“You should still expect a restructuring story,” he said of the U.S. business, adding not to expect a ‘drastic’ outcome.

HSBC has started a sales process for its retail banking in Brazil and Turkey, but the U.S. and Mexico businesses were likely to be kept, people familiar with the matter have said.

HSBC’s disastrous 2003 purchase of consumer lender Household left it as one of the biggest U.S. subprime lenders when the housing market crashed in 2007, landing it with more than $50 billion in losses and a lengthy restructuring job. It sold its U.S. credit card arm and half its branches there in 2011.

Gulliver said the U.S. business had problems but American corporates were big clients overseas, having access to dollar clearing supported its trade business and investment bank, and deposits from the retail bank helped fund other areas.

“The profitability of the U.S. business on its own somewhat underplays the significance of it, because there’s substantial revenues from U.S. companies that get booked in places like China, Saudi Arabia, Mexico that wouldn’t come about if we were not in the United States,” he said.

Gulliver is under pressure to get return on equity above 10 percent, from 7.3 percent in 2014, and to cut costs, especially in Europe and North America, where they are well above target.

His task in the United States is to continue to run down a legacy loan book, cut costs and grow revenues to improve profitability, he told reporters after HSBC reported a 4 percent rise in first quarter profits.

HSBC made a $532 million profit in the United States last year as retail banking bounced back into profit, but that was less than the bank made in Canada and the U.S. business requires a lot of capital.

Its consumer and mortgage lending portfolio was down to $21 billion at the end of March from $25 billion at end-December and $118 billion at its peak in 2008, but because of the high risk nature of the loans, HSBC had to hold capital equivalent to $49 billion of assets on a risk-weighted basis. (Reporting by Steve Slater, editing by Louise Heavens)

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