HSBC in the US: change the tune

Back in February, HSBC said that its US business could be in for an overhaul - music to investors' ears. Yet at last week's annual meeting, that tune was not played again. The Yankee unit received relatively little attention.

The bank's experience in the US has been cacophonous. HSBC gained a toehold in the 1980s with the acquisition of Marine Midland Bank. That acquisition was largely unwound in a 2009 sale. In 2002, HSBC bought subprime consumer lender Household Finance Corporation for $16bn - a screeching disaster. HSBC has closed the business. In 2005, HSBC bought subprime credit card issuer Metris; that went when HSBC's US card operations were sold to Capital One.

Then there is the regulatory noise. The US unit is operating under a five-year deferred-prosecution agreement with the US Department of Justice for money laundering and sanctions violations. This month, a federal monitor said that HSBC was making progress on compliance but still had substantial work to do.

Despite its global aspirations, HSBC is still very much an Asian bank - almost 80 per cent of profit before tax is generated in the region. Less than 8 per cent comes from North America (which includes Canada). North American profits are marginal: return on risk-weighted assets has been under 1 per cent for five years. Asia's returns have been comfortably north of 3 per cent. Retail banking is a particular struggle; its returns were roughly 0.5 per cent last year, and it had a pre-tax loss the year before that. The expense structure looks bloated, too: a 79 per cent North American cost efficiency ratio compares to 44 per cent in Asia.

HSBC has been selling businesses for years but needs to sell more to boost returns. Pulling out of the US - from retail banking certainly and perhaps from everything but a trade finance and currency trading outpost - would help. If boss Stuart Gulliver disagrees, he needs to explain - in detail - how the unit can make sweet music.

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