updated 8/4/2005 12:07:04 PM ET 2005-08-04T16:07:04

A unit of HSBC Holdings PLC is buying Metris Cos., one of the last remaining independent credit-card companies, for $1.59 billion in cash.

The deal will bolster the North American retail presence of HSBC, the British banking giant, which has been aggressively expanding in the United States through its Household consumer finance business.

Already, HSBC Finance Corp., of Prospect Heights, Ill., is the sixth-largest U.S. issuer of MasterCard and Visa credit cards.

Metris, based in Minnetonka, Minn., is the 11th-largest MasterCard and Visa issuer in the United States, with $5.9 billion in managed receivables.

About 43 percent of the cash in the deal will go to for Thomas H. Lee Partners LP, the private-equity fund that holds a big chunk of voting power in Metris and has four directors on the company’s board, including the fund’s namesake.

HSBC is offering a tiny premium to Metris shareholders — $15 a Metris share, compared with the stock’s $14.84 Wednesday closing price. Thursday morning, Metris shares skidded 25 cents, or 1.7 percent, to $14.59.

One reason for the paltry premium: Metris caters to a relatively low-end clientele, which the company classifies as “near prime.” Those customers generally run up smaller monthly bills and are seen as posing greater risks of defaulting than the more affluent clients that companies like MBNA Corp. and American Express Co. serve.

Tom Nicholson, an HSBC spokesman, said Metris’ portfolio is “complementary” to HSBC’s client base, which includes sub-prime and prime customers. Metris’s near-prime customers will “fit in between” HSBC’s existing customers, Nicholson said.

Metris in recent years has been hobbled by a series of financial, legal and accounting setbacks. In 2002, Metris sacked its chairman and chief executive, Ronald N. Zebeck, as the company struggled with a soaring charge-off rate. Zebeck later sued the company.

The Securities and Exchange Commission has been investigating the company’s financial records, including its accounting for loan-loss allowances in 2001. Last month, Metris disclosed that it has received a Wells notice indicating that the agency plans to recommend an enforcement action against the company and two top executives, including Wesselink.

The HSBC deal, which is expected to close in the fourth quarter, won’t go through until the SEC’s potential enforcement action is resolved. The deal also needs approval from Metris shareholders and regulators.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 5.03%
$30K home equity loan FICO 5.68%
$75K home equity loan FICO 4.87%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.42%
Cash Back Cards 17.94%
17.94%
Rewards Cards 17.15%
17.15%
Source: Bankrate.com