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HSBC set to close its US subprime mortgage unit

HSBC Holdings, the British-based banking giant, on Friday announced it will close its subprime mortgage subsidiary in the US, saying it was "no longer sustainable."

HSBC Holdings' earnings have been heavily hit by its heavy exposure to the troubled US subprime mortgage market, where home loans are given to people with patchy credit histories.

HSBC said its closure of Decision One Mortgage would entail a goodwill charge of around US$880 million and a US$65 million restructuring charge by the end of the year.

"This is a small part of our US business," HSBC Holdings Plc chief executive Michael Geoghegan said. "It's no longer sustainable and not the right place to allocate capital in the future. We said we would make tough decisions and we have done exactly that."

Decision One Mortgage, a unit of subsidiary HSBC Finance Corp, originates non-prime mortgages through brokers. The bank said it will continue to manage Decision One's loan portfolio, which totals US$349 million.

HSBC was the largest provider of subprime loans in the US last year, according to Inside Mortgage Finance, a real-estate industry tracker, ahead of the US leaders in the domestic market, New Century Financial and Countrywide.

The HSBC decision comes as rising interest rates and falling house prices have triggered a spike in foreclosures by borrowers with already stretched finances.

The tightening credit conditions have also caused two private equity firms on Friday to back out of their US$8 billion buyout of upscale audio equipment maker Harman International Industries Inc.

Kohlberg Kravis Roberts & Co and Goldman Sachs Group Inc's private equity unit told Harman they are under no obligation to complete the merger because "a material adverse change in Harman's business has occurred," Harman said in a statement.

Harman, whose audio equipment brands include Infinity, JBL and Harman Kardon, said it disagreed with those assertions, but did not make clear what action, if any, it would take.

A person familiar with the negotiations who asked not to be named said that the private equity firms sought to squash the deal over questions about Harman's financial health, not because of any financing difficulties in a tight credit market.
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