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Well It’s Buying Time Again

HSBC Holdings PLC announced Thursday the purchase of Household International, Inc. for $14.24 billion in stock, a promising move for Household’s hardest critics.

The move, which is expected to be finalized during first quarter 2003, is a major North American expansion for London-based HSBC. Household will become a wholly-owned subsidiary of HSBC, bringing its 1,400 offices in 46 states to the partnership.

“This is a great opportunity for us to strengthen both HSBC and Household’s business in a way that benefits both sets of shareholders,” said Sir John Bond, HSBC Group chairman. “This deal brings together one of the world’s most successful deposit gatherers with one of the world’s largest generators of assets. It is an extremely good match.”

The merger offers an opportunity to extend Household’s business model into countries and territories with HSBC branches, the announcement said.

Household also brings a decreased bottom line to the partnership. Its third quarter net income plummeted to a reported $221 million, compared with second quarter’s $507 million. The subprime mortgage company announced a $333 million settlement in October with state regulators and attorneys general who alleged predatory lending, according to The Wall Street Journal online. Before the settlement charge, the company’s net income would have been $554 million.

The company does not release mortgage loan production figures, a company spokeswoman said.

Maude Hurd, national president of the Association of Community Organizations for Reform Now (ACORN) said Household’s stock has failed to recover since the settlement at least in part because of current class action lawsuits still pending.

“It is this enormous legal liability, caused by the company’s predatory lending, that has brought this arrogant and unscrupulous corporation down so low,” she said. ACORN hopes “HSBC will be able to resolve these matters quickly and in a way that adequately compensates Household’s victims.”

ACORN is currently seeking class action status in three lawsuits filed against Household — one each in California and Massachusetts, in addition to a nationwide suit. The nationwide suit covers $45 billion in loans, with ACORN alleging that $8 billion of that was originated through predatory rates and fees, ACORN communications coordinator David Swanson said.

The organization’s three-pronged complaint against Household is its deceptive marketing, overpriced and abusive rates, and its entrapment tactics such as prepayment penalties.

However, the merger “might be a positive step for Household victims because HSBC has deep pockets,” Swanson said.

HSBC Bank USA reported $216 million in net income during the third quarter, compared with $184 million during third quarter 2001.

The U.S. bank’s residential mortgage business reportedly originated $14.9 billion in loans in the first nine month this year, a 42% increase from the $10.5 billion originated during the same time last year.

Household has agreed to pay HSBC a termination fee of $550 million, under certain circumstances, if the acquisition doesn’t go through, the announcement said. The acquisition must be approved by both companies’ shareholders and must receive a stamp of approval by regulatory entities in the United States, Canada, and the United Kingdom.

William F. Aldinger, current chairman and CEO of Household, will become chairman and CEO of a new holding company in the United States by the end of 2003 for a three-year term. Youssef A. Nasr will continue as president and CEO of HSBC’s North American operation, but will report to Aldinger.

Shares of HSBC Holdings PLC were trading at $57.36 near midday trading, up $3.16. Household shares were trading at $28.86 during the same trading time, up $1.36, according to CBS.MarketWatch.com.

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