In a move that will have repercussions throughout the personal finance industry, Capital One on Wednesday August 10, 2011 agreed to purchase fellow financial giant HSBC’s U.S. credit card division for a reported $2.6 billion.
HSBC, which is based in London and does the majority of its business in the United Kingdom, had been reportedly shopping its U.S. credit card holdings since mid-June, with Capital One thought to be a suitor from the start.
The move comes on the heels of Capital One’s controversial acquisition of ING Direct for $9 billion. European regulators required Netherlands-based ING to sell its U.S. holding as a condition of receiving financial assistance during the Great Recession. ING customers took to the Web following this sale, lashing out over a move that many perceived to be a harbinger of doom for ING’s trademark combination of low-maintenance accounts, low fee structures and attentive customer service.
While Capital One representatives say that cash from ING’s soon-to-be-acquired balance sheet will comprise part of the funding needed for the HSBC purchase, this has not stopped Fitch Ratings from putting Capital One on watch for a downgrade. According to Fitch, the cost and difficulty of integrating the former HSBC and ING holdings as well as cash that Capital One does not currently have lie at the heart of this decision.
A potential downgrade is not the only cause for concern resulting from the deal either, according to some industry insiders.
“Capital One’s recent moves are troubling given what they mean to competition within the credit card space,” said Odysseas Papadimitriou, CEO of the credit card comparison website WalletHub. “Fewer issuers means less incentive to offer attractive terms, and that can only be bad for consumers.”
Capital One’s addition of HSBC’s credit card arm instantly increases the size of what is already the fifth largest credit card division in the U.S. based on outstanding balances, much like absorbing ING Direct helped the company jump from eighth to fifth in terms of the largest banks in the U.S.
“The top five U.S. credit card issuers will now control 65% of the entire market,” said Papadimitriou. “It’s surprising to me that regulators have not shown more interest in this. The credit card industry is currently riding high given the changes implemented by the CARD Act, and it would really be a shame for this progress to be marred by monopoly-like power shifts that cause a general downturn in the attractiveness of credit card rates and rewards.”
