HSBC Holdings PLC faces another round of questions about how it will offer prime loans through Household International Inc. if its $14.2 billion deal to buy the Prospect Heights, Illinois-based consumer lender gets the green light.
The Office of the Comptroller of the Currency - the sole federal bank regulator involved in approving the deal - asked the London financial services company to provide more details about its January announcement to state regulators that it would "make prime products available to eligible customers ... at Household locations."
The New York State Banking Department had expressed concerns about the model in its original submission, which involved directing customers to a toll-free number. HSBC, whose U.S. operations are based in Buffalo, responded by saying it would expand its proposed "referral-up" program.
In a Feb. 12 letter to HSBC's lawyers obtained by American Banker (a sister publication of ASR), the OCC asked for "clarification" of how referral-up would work. "Would the loan officer at the branch be able to offer the alternative product, or what other procedure would be used?" is one of its four questions about the program.
The agency also requested calculations of Household's expected leverage, Tier-1, and total capital ratios. Some observers said that indicates the regulator might levy heavy capital charges on HSBC to cover Household's subprime loans.
Its response to allegations that Household Retail Services, which services the company's credit card accounts, "charges customers an annual fee after being advised by the retailer that the credit card will be free; fails to provide proper monthly statements; posts payments late, which results in late fees to customers; and reports to credit agencies using varied creditor or retailer names."
The agency's letter informed HSBC that its application was still incomplete. The deal might not be approved until spring, because the agency has 60 days from the date of official application completion to make a final decision.
The deal also requires approval from state banking and insurance regulators, including those in New York and Delaware.
Additional details requested by OCC
* Reported money-laundering "events" at its Spanish affiliate.
* Directors' backgrounds, as well as any changes the company is "contemplating" making to its board or management structure.
* Plans for the national bank charter of Household Bank N. A. in Nevada (the company had proposed having its credit card receivables transferred to HSBC Bank USA, which would leave Household's national charter dormant).
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