HSBC 2009 Annual Report Download - page 218

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Areas of special interest > Personal lending
216
HSBC’s US vehicle finance portfolio. The
transaction is currently expected to close in the
first quarter of 2010.
The Consumer Lending business historically
provided real estate secured, vehicle finance and
personal non-credit card loans. Loans were offered
with both revolving and closed-end terms and with
fixed or variable interest rates, and were originated
through branches, direct mail and the internet. Prior
to the first quarter of 2007, HSBC Finance’s
Mortgage Services business acquired loans from
correspondent lenders and, before September 2007,
also originated loans sourced through mortgage
brokers. The vehicle finance business originated
vehicle loans through its dealer and direct-to-
consumer origination channels and through its
‘autos-in-branches’ programme in the Consumer
Lending branch offices, until these originations were
discontinued.
In December 2009, HSBC Finance revised the
write-off period for its real estate secured and
Consumer Lending unsecured portfolios in order
to reflect changed customer behaviour. As a
consequence of this, real estate secured balances
are now written down to net realisable value
generally no later than the end of the month in which
the account becomes 180 days delinquent. Similarly,
for Consumer Lending unsecured products, balances
are now written off no later than the end of the
month in which the account becomes 180 days
delinquent. This change in write-off period was
reflected in lower recoverable balances and lower
impairment reserves at 31 December 2009.
Total US personal lending at 31 December 2009
stood at US$135 billion, a decline of 21 per cent
compared with the end of 2008, as HSBC ran off
certain portfolios in the consumer finance business
and improved the credit quality of the Card and
Retail Services portfolio through tightening
underwriting criteria.
Residential mortgage lending balances in the US
declined by 19 per cent to US$66 billion, driven by
the decision to close all Consumer Lending branches
and run off the legacy consumer finance portfolios.
The decrease in balances included a US$2.0 billion
reduction relating to the revised write-off period
referred to above and the sale of US$4.5 billion of
prime mortgage loans in HSBC Bank USA. US
mortgage lending is discussed in greater detail on
page 218.
Total personal lending fell by 6 per cent
in 2009. In the US, personal lending was
reduced by 21 per cent.
Other personal lending in the US fell by
23 per cent to US$69 billion, partly due to the run-
off in the unsecured Consumer Lending portfolio.
Credit card balances also declined, by 16 per cent to
US$39 billion, due to lower consumer spending and
steps taken by the Group to mitigate risk, including
tightening initial credit lines and sales authorisation
criteria, closing inactive accounts, decreasing credit
lines, restricting underwriting criteria, limiting cash
access, reducing marketing expenditure and, in the
private label portfolio, ending certain third-party
relationships. HSBC ceased originations in those
segments of the cards portfolio most affected by
the current housing and economic downturn. The
decline in balances included US$1.3 billion relating
to the revised write-off period for second lien
mortgages and other unsecured personal lending.
The Cards business remains a continuing
business in the US for HSBC, comprising both
general and private label portfolios. The general
Cards portfolio has approximately US$23 billion in
loans. According to The Nilson Report, HSBC is the
sixth largest issuer of MasterCard and Visa credit
cards in the US, based on loan balances.
The Private Label Credit Card (‘PLCC’)
business, with balances of US$15.6 billion, has
approximately 14 million active customer accounts
and 32 active merchant relationships. The Nilson
Report lists HSBC’s private label servicing
portfolio as the third largest portfolio in the US.
At 31 December 2009, PLCC loans were sourced
from the following business lines: approximately
45 per cent in consumer electronics, 24 per cent in
power sport vehicles, 16 per cent in department
stores, and 7 per cent of loans in furniture stores.
The private label financing products are generated
through merchant retail locations, merchant
catalogue and telephone sales, and direct mail and
internet applications.
Motor vehicle finance balances in the US
declined by 47 per cent to US$5.8 billion, reflecting
the 2008 decision to run off the portfolio in HSBC
Finance. As noted above, in November 2009, HSBC
agreed to sell the vehicle finance loan servicing
operation and US$1.0 billion of associated loans.