COF Capital One Financial Corporation

As a part of its long-term strategy to revamp its operations to stabilize capital levels and improve efficiency, HSBC Holdings Plc (HBC) has decided to close its retail banking business in Japan. Earlier in May 2011, the CEO of the company had announced plans to reduce the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of its global business.

HSBC will close six retail banking branches in Japan after four years of operations. The company announced that from February 23, 2012, it would stop accepting new deposits under its HSBC Premier Service from those clients who have more than ¥10 million ($124,549) in assets.

Further, HSBC will discontinue selling new investment products from March 8 as well as cease its operations in Tokyo, Osaka and Nagoya by July 31. However, the company will continue to offer corporate banking services in Japan.

Moreover, HSBC also stated that it will gradually phase out its services for the existing customers. The company would even help its clients to find alternative banking institution and also transfer their assets to the other bank without charging anything.

This is the second pull out for HSBC from the Japanese market. Earlier in December 2011, the company had announced its plan to divest its private banking unit in Japan to Credit Suisse Group (CS). The deal, which is expected to be closed by mid-2012, is still subjected to regulatory approvals.

However, over the last several months, HSBC has been shedding its non-core assets and trimming its workforce to control expenses. In August 2011, the company announced 30,000 layoffs by 2013.

Additionally, HSBC has exited its retail banking businesses in Chile, Canada, Poland and Russia. Moreover, the company is on the final stages of talks regarding the sell of its South Korean retail banking operations to KDB Financial Group.

Further, in January this year, HSBC announced the sale of its Latin American businesses in Costa Rica, El Salvador and Honduras for $801 million to Colombia-based Banco Davivienda. Last year, the company had announced the sale of its 195 non-strategic branches in the U.S. to First Niagara Financial Group Inc. (FNFG) for $1 billion and its U.S. credit card business to Capital One Financial Corporation (COF) for $32.7 billion.

Closing of the Japanese retail banking operations will enable HSBC to concentrate on its core business. This will also provide the company with long-term benefits. We expect the company to continue with such closures and strategic sale of business units to improve overall profitability going forward.

Currently, HSBC retains a Zacks #4 Rank, which translates into a short-term Sell rating. Also, considering the fundamentals, we maintain a long-term Underperform recommendation on the stock.

 
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