HSBC Finance Corp. will close its subprime wholesale lending channel and take more than $900 million in charges as a result.
The Prospect Heights, Ill.-based company will shut down its Decision One Mortgage subsidiary, according to a filing with the Securities and Exchange Commission today. The company will direct its focus to consumer operations under the HFC and Beneficial brands.
"In recent months, unprecedented developments in the mortgage industry have resulted in a significant reduction in secondary market demand for non-prime loans," the filing said. "Management has concluded that recovery of a secondary market for nonprime loans products is uncertain and at a minimum, cannot be expected to stabilize in the immediate term. As a result, a final determination was made today that our Decision One business will cease operations."
Around 750 people will be laid off as a result of the closing, the filing said. Most of the employees work in Fort Mill, S.C.; Phoenix, Ariz.; and Charlotte, N.C.
Michael Geoghegan, an executive for London-based parent HSBC Holdings plc, noted in the statement that the subprime wholesale unit represented just a small part of its U.S. business.
"It's no longer sustainable and not the right place to allocate capital in the future," he said.
Contractual servicing and support functions will continue to be provided by HSBC Finance as $349 million in current Decision One warehoused volumes is managed down, according to the statement.
HSBC said earlier this year it would close its correspondent acquisition channel and layoff an unspecified number of employees.
In addition to a $760 million credit impairment charge announced in July for the first half of the year in its North American mortgage services business, HSBC said today the closing of Decision One and the abandonment of correspondent lending will lead it to record a non-cash after-tax goodwill impairment of nearly $900 million during the second half of this year. After-tax charges for restructuring costs of approximately $65 million are also anticipated.
HSBC said last month it would close a retail mortgage facility in Carmel by the second quarter of 2008. The subprime center's 600 employees will be given the opportunity to apply for other positions at HSBC, a spokesman said at the time.
Retail branch operations were not affected by today's announcement, HSBC said.