Capital One Buys HSBC Credit Card Unit

Capital One just got a 2.6 billion dollar bargain: the U.S. credit card sector of London-based HSBC Holdings.

As research director at market research company TowerGroup said to Moneyland, “They got it for a really good deal.”

As a result of this acquisition, Capital One will become the third-largest issuer of store-branded credit cards, dispensing cards for well-knownretailers such as Neiman Marcus, Best Buy and Saks Fifth Avenue. They already secured the right to issue Kohl’s cards from a deal made with J.P. Morgan Chase last April. Capital one also managed to purchase the credit card portfolio of Canada’s retail conglomerateHudson’s Bay Co. back in January. Together, this all serves to put Capital One at the forefront of the niche market for private-label plastic.

David Robertson, publisher of the payment-industry trade publication the Nilson Report, said, “Capital One’s specialty has always been trying to find the profitable revolving-credit customer. The private-label credit card portfolio will give them an increased ability to do that.”

Although store cards pose a higher risk for delinquencies and defaults than traditional credit cards, due to they’re being unsecured, the trade-off for issuers is their high fee income. Also, most retailers offering store cards have a vast network of their retail stores, granting issuers the opportunity to hedge their bets against regional economic hardship.

“Capital One has proven to be pretty good to credit managers through this cycle and this is a way for them to continue to leverage their card expertise and get some loan growth,” said Donald Fandetti, a Citi Investment Research analyst .

Analysts say that the store-brand credit card business is starting to make a comeback, after tapering off during the previous economic crisis. Account defaults have declined, over the past year, as have charge-offs. Charge-offs occur when creditors declare certain portions of debt unlikely to be collected based upon the amount of time the account has been delinquent. The stricter standards for acquiring a traditional credit card have contributed to make private-label cards appealing to more customers.

Current HSBC customers will likely be happy with the Capital One takeover, especially if their new card affords them more rewards and even better terms. As always, cardholders with anywhere from good to nearly excellent credit scores stand to reap the most benefits. A lot more marketing can to be expected, as media-savvy Capital One brandishes its new products, including the ones as a result of their June deal to buy online bank ING Direct, to a wider audience.

Lauren Palmer

Lauren Palmer is a freelance writer who is a regular contributor to a variety of online and print publications. Although she has much to say about many subjects, she specializes in topics pertaining to personal finance. She holds a bachelor’s degree from NYU in journalism.