HSBC Retreats from the U.S. as Citizens Bank Reaps Branch Reward

London-based megabank HSBC, a powerhouse in the Far East, broke into the U.S. market 40 years ago, amassing a collection of customers and physical locations across the country. Now, in a sharp reversal, Citizens Financial is set to acquire almost all of HSBC's East Coast branches, filling in its Northeastern footprint.

Storied global banking giant HSBC, founded in 1865 as the Hong Kong and Shanghai Banking Corp., is yielding its hold in the American retail banking mass market after 40 years of effort.

In May 2021, London-based HSBC Holdings announced that Citizens Financial Group, the Rhode Island-based regional — which was a subsidiary the Royal Bank of Scotland for 26 years — will acquire 80 East Coast branches from HSBC Bank USA, in addition to the bank’s national online deposit business. Cathay Bank will acquire HSBC’s ten West Coast branches.

The deal gives Citizens a much bigger presence in the important New York market, where it will be in the top 25 retail banks, according to the Philadelphia Business Journal. Citizens will pick up nearly 800,000 former HSBC customers, increasing its existing portfolio of 6.6 million by 21%.

Citizens, valued at $183.4 billion, is capitalizing on the acquisition. On top of the branch growth, the Providence, Rhode Island-based bank is set to acquire nearly $9 billion in deposits and almost $2.2 billion in outstanding loans. Barron’s reports the total value of the deal at $21 billion.

“With a sizable customer base and a solid deposit franchise, this acquisition will serve as a springboard for our consumer national expansion strategy,” Bruce Van Saun, Chairman and CEO of Citizens, said in a statement. “The $7 billion net deposit position provides us significant long-term funding flexibility in support of our attractive loan growth opportunities.”

On the other hand, HSBC says it looks to reposition its investments in the U.S. to “focus on the banking and wealth management needs of globally connected affluent and high net worth clients.” The branches the bank is selling are “good businesses,” but HSBC lacks the scale to compete, HSBC Group Chief Executive Noel Quinn said in a statement.

Why Is HSBC Walking?

HSBC has been a familiar name in the U.S. market — particularly in the Mid Atlantic — for decades, after it acquired the majority of Buffalo, N.Y.-based Marine Midland Bank in 1980. The branches of Marine Midland held onto their names until the late ’90s, when they were rebranded as HSBC.

What’s the Problem?

According to HSBC’s Group Chief Executive, HSBC no longer feels it can scale to meet the competition in the U.S. retail market.

HSBC’s decision to quit the U.S. mass market is an abrupt turnaround from the optimism expressed as recently as mid-2019, when the bank announced it would be adding more than 300 employees to its books and anywhere up to 50 branches in its existing footprint, with the potential of stretching into new markets.

The same year, New York-based HSBC Bank USA enthusiastically shared news that its latest employee — Pepper, a androgynous robot designed by SoftBanks Robotics Group — was showing great success. The bank told The Financial Brand it was seeing a 60% increase in new business year over year and a five-fold increase in foot traffic in the New York City headquarters branch where Pepper was introduced.

What Citizens Gains

The acquisition of HSBC’s branches means Citizens will expand further into the East Coast market, extending the company’s reach past New England and Philadelphia and into the heart of the New York City and Washington, D.C. markets. The deal also gains some market presence in southeast Florida for Citizens, where many of the bank’s “snowbird” customers spend their winters, Van Saun says.

Scott Siefers, and analyst at Piper Sandler, agrees the move on Citizens’ part was a strong bet.

“We view this as a low-cost, low-risk transaction that will expand [Citizens] into some attractive new markets,” Siefers wrote in a note to investors. He pointed out that 98% of the acquired deposits will be made up of checking and savings accounts, an overall low-cost funding source for the bank.

The Upside for Citizens:

The HSBC branch acquisition gives Citizens a much stronger presence in two of the country’s most important markets: New York City and D.C.

The New York metro area was previously a major gap in Citizens’ real estate, Head of Consumer Banking Brendan Coughlin told the Philadelphia Business Journal, adding “it’s a really hard market to enter.” Of the acquired deposits in the HSBC deal, 63% (about 66 branches) are New York City-based.

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Not Just Brick and Mortar

Citizens is not gaining only physical branches. Almost a third (31%) of HSBC’s U.S. deposits originated online, which Siefers says is another key element of the deal. The hope, Coughlin says, is the bank will be able to smoothly consolidate HSBC’s online portfolio and Citizens’ own digital platform, Citizens Access.

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Right now, the bank has no plans to shutter the doors of any of HSBC’s former branches, Coughlin says, although the pandemic forced his teams to shutter 25% of Citizens’ branches before the acquisition. Since early 2020, the bank has closed over 100 of its branches.

“For us, it’s waiting for the customers to tell us, and that’s through foot traffic. So, we don’t put the cart before the horse,” Coughlin told the Philadelphia Business Journal.

On top of the new deal, Citizens will soon launch its Center City hub on 1835 Market Street in Philadelphia, where it already runs 42 brick-and-mortar locations. The hub will include retail and wealth management services.

Neither company has yet announced when the deal is set to close. Citizens filed an 8-K notifying the SEC of the deal and HSBC said in a release the deal is pending regulatory approval.

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