HSBC/Metris: US consolidation craze continues

8th August 2005

HSBC Finance has announced that it is to acquire credit card issuer Metris in a deal worth $1.6 billion. The news follows a spate of recent M&A activity in the US card and consumer finance sector, and suggests that the wave of consolidation is continuing apace. There remains plenty of scope for more such tie-ups, with speculation again likely to focus on the likes of Discover and Capital One.

The deal between HSBC Finance and Metris [MXT], which issues credit cards through its Direct Merchants Credit Card Bank subsidiary, is expected to close in the fourth quarter of 2005. It will see Metris become a wholly-owned subsidiary of HSBC. As Metris is a specialist in non-standard consumer finance, the purchase will see HSBC further build on the expertise it gained in this area following its acquisition of Household Finance in 2003.

News of the acquisition comes hot on the heels of the announcements that Bank of America is to acquire MBNA and that Washington Mutual has bid for Providian Financial. It also follows last year's M&A activity between JP Morgan Chase & Co and Bank One, and the merger between Bank of America and Fleet.

This latest round of activity will see Bank of America oust JP Morgan from the top of the credit card issuer table and HSBC cement its number seven position, behind Discover, in terms of outstandings.

Apart from juggling the positions in the bank card league table, the HSBC/Metris deal also highlights another trend, namely the creation of a bank card superleague. The top three players in US credit cards, Bank of America, JP Morgan Chase and Citigroup, all boast outstandings in excess of $100 billion, while the next few players have around $30-60 billon in balances.

This trend, along with US consumers' apparent continuing appetite for credit card borrowing, suggests that more consolidation is still to come. This means that, as well as boosting its own credit card operations, HSBC's buy will contribute to an industry-wide shake-up that could see its biggest rivals make similar M&A moves. Indeed, although the US market is served by a huge number of credit card providers, leaving plenty of room for further consolidation, major players Capital One and Discover have been the main focus of speculation in the past, and are likely to be so again.