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What are Citizens Bank and Cathay Bank, the buyers of more than 90 of HSBC's US branches?

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After four decades of operating in the United States, HSBC is preparing to exit its American retail banking business for mass-market customers and small businesses to focus primarily on wealthy clients and big, international corporations.

As a stand-alone retail bank, HSBC said its scale could not compete effectively with the biggest US banks, JPMorgan Chase, Bank of America, Citibank and Wells Fargo.

HSBC, the biggest of Hong Kong's three currency-issuing banks, is putting more resources to work in Asia to tap rising incomes in the Greater Bay Area and other parts of the region, shifting capital from underperforming businesses in the US and Europe.

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With this pivot to Asia, the London-based lender will sell about 90 of its US branches to Citizens Bank, a unit of Citizens Financial Group, and Cathay Bank, a Los Angeles-based lender focused on the Chinese-American community. The purchase of HSBC's bicoastal US branches will bolster the existing footprints of Citizens and Cathay.

Here's what you need to know about Citizens Bank and Cathay Bank.

What is Citizens Bank?

The retail banking arm of Rhode Island-based Citizens Financial Group is one of the oldest financial institutions in the US, tracing its roots to High Street Bank, founded in 1828. The predecessors of JPMorgan and Citibank are among the few lenders who are older, founded in New York City in 1799 and 1812, respectively.

Citizens grew rapidly in the late eighties through more than two dozen deals following its acquisition by Royal Bank of Scotland Group (RBS) - now NatWest Group - in 1988. It expanded from 29 branches in Rhode Island in 1981 to about 1,000 in 11 states in New England, the mid-Atlantic region and the Midwest. today. As of March 31, Citizen had US$187.2 billion in assets.

It went public in the US in 2015 after it was spun off from RBS and is traded on the New York Stock Exchange.

Cathay Bank's branch in Hong Kong. Photo: Georgina Lee alt=Cathay Bank's branch in Hong Kong. Photo: Georgina Lee

What is Cathay Bank?

Cathay Bank is a much younger lender, opening its doors in 1962 to serve the Chinese-American community in Los Angeles. (It claims to be the oldest operating bank in the US founded by Chinese Americans.)

The bank, a subsidiary of Cathay General Bancorp, has more than 60 branches in nine US states, as well as a single branch in Hong Kong and representative offices in Beijing, Shanghai and Taipei.

Cathay opened its first office in Hong Kong in 1985 as part of its international expansion and began trading on Nasdaq five years later.

The Hong Kong branch is located on the 30th floor of an office tower overlooking Victoria Harbour in Tsim Sha Tsui, and customers in Hong Kong require a referral from one of its US branches.

It competes with the likes of East West Bank, Bank of Hope and Hanmi Bank in serving the Asian community in California and other ethnic groups across the US.

As of March 31, the bank had total assets of US$19.2 billion.

What does the HSBC deal mean for Citizens Bank?

Citizens Bank is buying 80 of HSBC's retail bank branches on the US East Coast, with about 800,000 customers, US$9.2 billion in deposits and US$2.2 billion of outstanding loans.

More than 60 of these are in the metropolitan area around New York City and will be rebranded Citizens branches after the deal closes next year.

"This transaction provides us with an attractive entry into the important New York City metro, Washington DC, and Southeast Florida markets," Citizens Financial's chairman and chief executive Bruce Van Saun said in a statement. "With a sizeable customer base and a solid deposit franchise, this acquisition will serve as a springboard for our consumer national expansion strategy."

Citizens said it would pay a 2 per cent premium on deposits in the business at closing, which is expected in first-quarter 2022.

What is Cathay Bank getting out of the HSBC deal?

Cathay will buy 10 HSBC branches on the US West Coast, serving about 50,000 customers with US$1 billion in deposits and US$800,000 in outstanding loans.

"This transaction will broaden the reach of our Northern and Southern California branch network," Cathay General Bancorp's executive chairman Dunson K. Cheng said in a statement. "As we continue to grow and expand, the ability to provide our clients added ease in accessing banking services is a significant step in our journey."

Cathay and HSBC did not disclose the terms of transaction, but Cathay said it would be about 2 per cent accretive to Cathay General's earnings per share on a run-rate basis, excluding any transaction or restructuring costs.

HSBC CEO Noel Quinn. Photo: AFP/HSBC alt=HSBC CEO Noel Quinn. Photo: AFP/HSBC

What does the sale of HSBC branches mean for HSBC customers in the US?

HSBC is focusing on wealthy customers and international companies looking to conduct business in the US as part of its latest revamp of its American operations under CEO Noel Quinn.

That means customers with less than US$75,000 in their accounts or small businesses with less than US$5 million in annual revenue will no longer be served by the bank in the US, after the deal closes next year.

Those customers, much like the HSBC employees working at the affected branches, will transition to Citizens Bank and Cathay Bank following the transactions. Both banks intend to rebrand the former HSBC branches as soon as the deal closes.

HSBC currently has about 148 branches in the US. It intends to keep 20 to 25 of the physical locations open, transforming them into wealth centres to serve affluent and high-net-worth clients. The remaining branches, between 35 and 40 of them, will be closed.

The sale is an important step towards becoming a "more focused, simpler and sustainably profitable organisation," said HSBC's chief executive for the US and the Americas, Michael Roberts.

"A strong, internationally connected US business is an important part of HSBC's value proposition, and we are excited to be focusing the US business in areas of competitive strength," Roberts said.

Additional reporting by Georgina Lee

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.