May 29, 2021 / VOLUME NO. 159
HSBC’s Exit Is Another Bank’s Gain

Need another reminder that scale matters?
This past Wednesday, London-based HSBC Holdings announced its plans to exit retail banking for most individual and small business customers in the United States. While the 13th largest bank by assets in the country intends to retain a small physical presence, it does so to serve high net worth clients in the U.S.
So what gives? Noel Quinn, Group Chief Executive of HSBC, stated in a press release about the move:
“We are pleased to announce the sale of the domestic mass market of our US retail banking business. They are good businesses, but we lacked the scale to compete.”
Year after year, we survey officers and directors to gauge their appetite for growth. And year after year, scale is an underlying theme that ties back to an institution's survival. 
Readers appreciate the challenges facing many in our highly competitive industry. Today, as one business gets smaller, two others stand to benefit.
Citizens Bank, part of Providence, Rhode Island-based Citizens Financial Group, agreed to purchase HSBC’s East Coast mass market and retail business banking businesses, which includes 80 branches and around 800,000 customer relationships with approximately $9.2 billion in deposits and $2.2 billion in loans.
In parallel, Los Angeles-based Cathay Bank, the bank unit of Cathay General Bancorp, entered into an agreement to purchase the West Coast mass market and retail business banking businesses — including 10 branches and approximately 50,000 customer relationships with $1 billion in deposits and $800 million of outstanding loans.
In the same week, Detroit-based TCF Financial Corp. announced plans to sell 14 branches to Michigan City, Indiana-based Horizon Bancorp in exchange for regulatory approval of its deal to sell to Huntington Bancshares. 
Given low interest rates, banks have been able to pick up branches and deposits when the pricing for such deposits is low. 
Citizens said it paid a 2% premium for the deposits and estimated that the branch deal is immediately accretive to earnings per share, generating an internal rate of return of about 20%. Horizon Bancorp noted it’s paying a 1.75% deposit premium to buy the Michigan branches. 
Banks clearly have not lost interest in buying branches and acquiring deposits, following the logic of buying when prices are low. But these branch deals are about so much more: acquiring customer relationships, improving balance sheets and growing loans.
Banking’s “great game” — M&A — continues to pick up speed as we head into warmer months. This week’s announcement from HSBC shows once again that scale really does matter. And so does timing. 
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