HSBC Auto Finance Freezes Indirect Auto Lending
PROSPECT HEIGHTS, Ill. — During a Monday conference call to discuss half-year results, HSBC announced it has decided to exit the indirect auto finance business.
"We're going to discontinue new auto loan originations via our indirect origination channel (or through dealers)," Cindy Savio, a company spokesperson, told SubPrime Auto Finance News this morning.
"As we stated previously, we have been under strategic review for some time. By exiting this business, it will allow HSBC Finance Corp. to focus on its core business of credit cards and consumer lending," she continued.
She indicated that the business will continue direct auto loans in consumer lending branches until it can find an alternative third-party to take this over. The online direct network has also ceased originations.
In the conference call Monday, Michael Geoghegan, group chief executive, explained, "Today, we have announced the run-off of our vehicle finance business. Our vehicle finance portfolio actually improved credit quality over the period but the business does not have sufficient critical mass or the pricing power to provide an acceptable return to the group, and so we will not be originating further loans.
"We expect an orderly run-off of about 80 percent of the portfolio of $13 billion (U.S.) to be achieved in three years, with the remaining balance trailing off after that time. Our U.S.-based consumer finance business will now be focused mainly on cards and consumer lending," he continued.
Overall, in the U.S., Geoghegan said the company's personal financial services business posted a loss of $2.2 billion (U.S.).
"Loan impairment charges and other credit risk provisions rose by 85 percent on the first half of 2007 to $6.8 billion (U.S.), but declined by 15 percent compared with the second half," he reported.
"The U.S. remains a difficult market, with rising unemployment and falling house prices, and we have recognized this with an impairment charge of $527 million (U.S.) on the goodwill of our North American Personal Financial Services business at the group level," Geoghegan indicated.
Discussing overall company results, Stephen Green, group chairman, told investors, "In the first half of 2008 we remained profitable in all our customer groups. We also remained profitable in all of our geographical regions with the continuing exception of North America. Revenue rose by 3 percent compared with the first half of 2007; loan impairments were up by 58 percent, but were 8 percent lower than in the second half. Costs on an underlying basis were well contained, growing by only 4 percent compared with the first half of 2007, and down by 2 percent on the second half.
"Compared with the second half of 2007, we improved profitability in all our customer groups and for the group as a whole by 2 percent. In particular, it is notable that profitability in Global Banking and Markets — where extremely difficult market conditions led to write downs of U.S. $3.9 billion — was 37 percent higher than the second half of 2007," according to Green.
"Meanwhile, our U.S. consumer finance business continues to face difficulties, but performed within our expectations, with loan impairments of U.S. $6.6 billion, lower than in the second half of 2007 by 17 percent," he stated.