Skip to main content

Investors sitting on losses in

Household International

(HI) - Get Hillenbrand, Inc. Report

can rejoice after



agreed to acquire the consumer lender for $14 billion in stock.

The London-based bank holding company agreed to buy the giant credit-card issuer for stock worth $30.04 a Household share -- a nearly 35% premium over Household's Wednesday close of $22.64.

TheStreet Recommends

Household, based outside Chicago, issues credit cards and makes car and mortgage loans. Its shares are currently sitting near 7-year lows and the chart was made uglier last month when it agreed to pay $484 million to settle state charges that it engaged in predatory lending. HSBC is getting a bargain but is making a fairly significant gamble that the company's problems, which have included

deterioration in the credit quality of certain loan portfolios, are behind it.

For its part, HSBC has long been rumored a suitor for various U.S. financial services companies, including most recently


( FBF), as it scrambles to compensate for weakness in Asia, where it is a traditional power but where economic conditions have been depressed.

Consumer lending in the U.S. has been a mixed bag over the last year, as strength in home-equity and refinancing loans have preserved margins in the face of weakening credit quality. The recent half-point interest rate cut by the Fed is likely to keep the refinancing boom in place but has led some to predict a

spread squeeze for big lenders.

Household shareholders will get to 2.675 HSBC shares or 0.535 HSBC American Depositary shares in the transaction, which is expected to close by the first quarter of 2003. Household Chairman and CEO William F. Aldinger will keep that post in the new holding company.