HSBC Holdings PLC's North American arm is taking a breather from expanding its modest U.S. branch network after adding 125 branches in the past five years.

The $390 billion-asset lender said it is focusing more on increasing deposits through its online banking offerings and by drumming up new business from people who live in international hubs like Seattle and San Diego. It has also stopped offering free checking accounts.

"We have a very niche branch strategy — we are not opening our branches just to cover" the country, Brendan McDonagh, chief executive of HSBC North America Holdings Inc., said in a call with reporters on Monday. "We have no aspirations to compete on every street corner, in every state."

HSBC North America is somewhat of an anomaly in the U.S. banking market.

It is the fifth-largest U.S. banking company by assets, but it has a lower profile than most regional banks because it has relatively few branches. Its U.S. division is essentially a national consumer lending business combined with a New York-area regional bank that has branches scattered around the country.

It hasn't necessarily been a winning formula.

The bulk of the consumer lending arm, HSBC Finance Corp., is winding down after booking massive losses on subprime mortgages and auto loans. That division, which the parent acquired in 2003, continues to bleed money, losing $7.5 billion in 2009 after losing $2.8 billion a year earlier. HSBC Holdings essentially threw in the towel on HSBC Finance last year, announcing that it would stop making new consumer loans and close all of its locations while focusing on the U.S. retail arm, HSBC USA Inc.

That division includes the 479-branch retail bank, parts of its U.S. credit card business as well as its private banking and commercial banking businesses.

HSBC USA has had a hard slog through the recession as well, racking up mounting home mortgage and business loan losses. Still, its loss narrowed to $142 million in 2009 from $1.7 billion in 2008, mostly on the strength of its profitable credit card and commercial banking businesses. HSBC Holdings continued to invest in the retail side through the recession by opening branches while increasing deposits through high-end and online savings accounts. Its checking accounts for affluent customers, for instance, grew by 60% in 2009 while online savings accounts rose nearly 8%.

McDonagh said HSBC now plans to open just six more U.S. branches this year after adding 18 last year and about 125 in the past five years. There are no more branch openings in the works.

HSBC has no desire to be a national retail banking powerhouse, McDonagh said. Its U.S. strategy has been to use its international reach to attract business from U.S. customers that live in port cities and have family or business interests overseas.

For the moment, McDonagh said, the company is comfortable with the size of its U.S. branch network — with about 374 in New York state, 33 in California, 22 in Florida and others in New Jersey, Connecticut, Virginia, Maryland and Washington. It wants to see "strong growth" in deposits and cross-sales at its newest branches before opening any more, McDonagh said.

And it does not plan on making any acquisitions, he said.

On the deposit-gathering front, last year the company largely did away with its free-checking program, though customers who use direct deposit still don't have to pay for checking.

Company officials said the change was intended to improve efficiency and better disclose what customers are paying for. McDonagh said it had nothing to do with the regulatory backlash against overdraft fees.

Suzanne Moot, an banking consult with M&M Associates, said it makes sense for HSBC to take a break from opening new branches, as it enables it to take stock of whether its expansion strategy is working or not. She said taking away free checking could be risky, though.

"I am kind of surprised that they would go back to existing customers and change those account agreements," she said. "It is potentially very disruptive."

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