HSBC Holdings, Europe's biggest bank, is to close its US subprime mortgage unit, cutting 750 jobs and taking $945 million (€670 million) in charges and writedowns, because the business is no longer sustainable.
For London-based HSBC, under pressure from activist investors to shake up its corporate governance, it was the latest blow from the meltdown in the US market for loans to home-buyers who have poor credit histories.
HSBC Finance, the US consumer finance arm of HSBC, said that the closure of Decision One Mortgage would result in about 750 people losing their jobs. Decision One has operations in Fort Mill, South Carolina, Phoenix, Arizona, and Charlotte, North Carolina.
"It is no longer sustainable and not the right place to allocate capital in the future," said Michael Geoghegan, group chief executive at HSBC Holdings.
Dozens of US subprime lenders have curtailed operations, closed down or filed for bankruptcy protection.
The subprime crisis has caused turmoil in the US housing industry and has played a central role in nearly 90,000 job cuts.
HSBC Finance will record an impairment charge of about $880 million, reflecting a writedown of the Decision One assets on its books.
It also will incur about $65 million in after-tax charges for restructuring which includes employee termination benefits and facility closures.
HSBC acquired Decision One when it bought Household International in 2003 for $14 billion. Decision One is a small part of HSBC's US operations, which also includes car lending and credit card businesses.
HSBC Finance has closed two of its three channels for subprime mortgage lending.
The bank's chief executive, Brendan McDonagh, said that the company would continue to originate subprime loans through its network of more than 1,350 branches.
"Historically, loans originated in branch offices generally perform better," Mr McDonagh said. "You are in direct control of the relationship, you underwrite on a one-to-one basis."
Before yesterday's announcement Decision One had begun to restructure its operations as defaults on risky subprime loans escalated.
The unit had centralised loan processing and underwriting and reduced the number of operating centres to two from 17.
Decision One relied on a network of independent mortgage brokers to find borrowers and to submit loan applications, a model which has been curtailed or discontinued by other lenders burned by lax underwriting standards and fraudulent behaviour.
