HSBC has been criticized by some analysts for the purchase of Household. Merrill Lynch & Co. and at least six other brokers cut their 2005 earnings estimates for HSBC on March 1, a day after the bank reported the slowest earnings growth in 2 1/2 years as earnings from consumer lending in the U.S. declined. “The future, for the near term at least, remains weak,” said Peter Toeman, an analyst at Morgan Stanley in London in a note to clients on March 1. “Household’s profits will decline.”
Meanwhile we saw this quote from HSBC Chief Executive Officer Stephen Green: “The acquisition of Household has justified itself in spades already,” Green said. “There are interesting referral opportunities between the consumer finance business and banking business. There’s a Hispanic customer base of the consumer finance business that is particularly strong and where we have relevant linkages because we have a big business in Mexico.”
What Green fails to acknowledge, according to Household - HSBC Watch consumer advocates, is a pending RICO suit involving Household and H&R Block, a suit against Household’s MasterCard operation, and other possible legal action. Settlements in the two suits alone could be in excess of US$10 Billion. How does that make HSBC’s purchase of Household justified? “The analysts are correct” said the advocacy organization. “Household’s profits are declining and their vulnerabilities are skyrocketing. We think HSBC is realizing that William (Bill) Aldinger sold HSBC a flawed company, unloading Household International on unsuspecting bankers that did poor due diligence.”
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