Nov 15, 2002 By Bruce Stanley Ap Business Writer 4 min read

LONDON (AP) – HSBC Holdings PLC announced a $14.2 billion deal Thursday to buy Household International Inc., which owns the Beneficial and Household Finance brands and is the largest independent consumer finance company in United States. London-based HSBC, known best for banking in emerging markets in Asia, would greatly expand its business in North America with the acquisition. Household makes personal loans for houses, cars and other uses.

Shares of Household surged more than 22 percent on the news, while HSBC’s shares slipped 4 percent.

Managers of both companies are recommending the buyout, but shareholders and regulatory authorities still must approve. The two companies expect to complete the deal during the first quarter of 2003. Under the agreement, Household shareholders would receive 2.675 HSBC ordinary shares traded in London for each Household share. That represents about $30 per Household share at Wednesday’s closing price and would be a 47 percent premium over Household’s closing price of $22.46 a share on Wednesday on the New York Stock Exchange.

HSBC said the acquisition would meet its goals of increasing its consumer lending business and improving the geographic balance of its earnings. The deal also would generate cost savings in information technology, administrative support and the consolidation of credit card processing, HSBC said.

In a telephone conference with reporters on Thursday, Youssef A. Nasr, president and chief executive of HSBC North America Inc., called it “a tremendous opportunity for HSBC.”

He said it would give HSBC a “much more diversified presence across the United States.”

Nasr said there would be a one-time charge of $600 million to $800 million for loan loss provisions, which regulators set at a higher for banks than for finance companies.

William F. Aldinger, Household’s chairman and chief executive, told the phone conference that after the takeover, the assets of the combined companies would rank it among the top five financial institutions in the United States.

He said Household would benefit from “lower funding costs” because Household will be able to draw on money from the HSBC deposit base rather than having to tap more-expensive capital markets.

Aldinger said that among the places he expected to see Household and Beneficial expand were in Europe and Asia, where HSBC already has a strong presence.

Rating agencies Moody’s, Standard & Poor’s and Fitch said they were reviewing their credit ratings on Household as a result of the announcement.

Merrill Lynch, meanwhile, repeated its “sell” recommendation on HSBC shares. It noted that HSBC had presented a “cautious view” at a recent investors’ conference and “to now plunge into subprime or close to subprime U.S. consumer credit looks strange.”

Household, based in Prospect Heights, Ill., was founded in 1878 and claims 50 million customers.

It operates 1,400 branch offices in the United States and 300 in Canada and Britain. Many of its customers have had credit problems in the past or have low credit ratings.

Household earned $1.8 billion in 2001 and $1.2 billion for the nine months ending Sept. 30.

The U.S. company has suffered this year from an increase in bad loans due to tougher business conditions. It also took a $525 million hit in the third quarter for expenses related to a settlement of alleged violations of U.S. federal and state banking laws. Credit rating agencies recently downgraded the company’s debt as a result of the one-time charge.

On Thursday, a nonprofit consumers group based in New York said it would oppose HSBC’s application for regulatory approval of its purchase.

The Inner City Press executive director Matthew Lee said in a statement that the recent Household settlement dealt with “only some of the issues.”

It said, for example, that Household wrote tax refund anticipation loans, similar to those written by H&R Block that have been the subject of a law suit. It also criticized “Household’s even-more problematic business line of personal loans, replete with forced-placed credit insurance.”

Aldinger will keep his titles in a new holding company of the enlarged group in the United States, HSBC said. Aldinger would also become a director at HSBC.

Nasr will continue in his role as president and chief executive of HSBC North America Inc., while David A. Schoenholz, president and chief operating officer of Household Inc., would head the consumer finance business.

If the acquisition fails to take place, Household has agreed to pay HSBC a termination fee of $550 million under certain conditions.