CIT Buys HSBC's Factoring Division
Livingston, N.J.–based CIT Group Inc., a leading global source of factoring and financing for apparel businesses nationwide, has acquired all of the U.S. factoring assets and liabilities of HSBC Bank USA, a New York–based bank with four locations in Los Angeles. Terms of the agreement were not disclosed.
On Dec. 31, CIT announced it had purchased HSBC Bank’s domestic factoring assets, valued at about $1 billion before assumed liabilities, with net assets of about $270 million. HSBC will retain its international factoring business, which serves international clients with U.S. factoring needs, CIT said.
The acquisition strengthens CIT’s role as a domestic provider of financing. Last September, the company acquired GE Commercial Services’ domestic factoring assets for $446 million. And in 1999, the company purchased Heller Financial’s commercial services unit.
HSBC Bank USA is a subsidiary of London-based HSBC Group, the second-largest financial institution in the world. HSBC’s factoring division has assets of approximately $1 billion before assumed liabilities, acording to the company, which reports net assets for the unit of approximately $270 million.
Martin Glynn, president and chief operating officer of HSBC Bank USA, said his company decided to exit the domestic factoring business as part of a plan to emphasize its core U.S. business, according to a press statement. The company has been on a buying spree during the past two years, picking up the Bank of Bermuda and the Brazilian assets of Lloyds TSB last year and Las Vegas–based Household Bank, the credit card bank division of Household International, in late 2002.
Jeffrey M. Peek, president and chief operating officer of the CIT Group, said the acquisition is in line with CIT’s corporate strategy to pursue growth opportunities that are “synergistic with [the company’s] core business lines and meet [the company’s] return-on-equity targets.”
CIT Commercial Services is headquartered in New York and has offices in Charlotte, N.C.; Dallas; Los Angeles; Danville, Va.; Hong Kong; and Shanghai. CIT Group manages approximately $50 billion in assets for companies worldwide, said a company spokesman.
CIT Commercial Services President John Daly said: “This addition to our existing portfolio reinforces CIT’s commitment to the various industries that sell into retail channels of distribution.”
Fewer financing players
The factoring assets CIT is acquiring from HSBC are very similar to those in its current portfolio, according to Mitchell Cohen, senior vice president and regional manager of CIT Commercial Services in Los Angeles. “We will continue to factor companies in industries such as apparel, furniture, home furnishings and consumer electronics,” he said.
Prior to the merger, CIT was already the largest factor to the apparel industry. Industry sources estimate CIT’s stake in Los Angeles’ apparel industry ranges from 60 percent to 80 percent.
Industry observers said they worry the merger could give CIT an even larger share of the business in Los Angeles and make it difficult for business owners to negotiate commission rates on factored invoices.
Los Angeles–based misses manufacturer Studio- CL Corp. relies on several million dollars from factoring institutions each year. Co-owner Leonard Rabinowitz said the consolidation could mean fewer options than before for apparel business owners looking for competitive rates.
And more important, with the merger of two large factoring companies, some manufacturers anticipate having less access to credit.
“I’m not surprised [by the merger]. It is in CIT’s total plan to have the critical mass to make money in the factoring world,” said one industry observer, who asked not to be identified but said he expected rates to rise from their current “disproportionately low” levels.
“The big concern is that the credit concentration is going to prevent manufacturers from getting the goods they need,” he added.
In the past, manufacturers could combine credit from two factors to cover high invoices. For example, CIT could extend $200,000 in credit to a company and HSBC could extend $100,000, giving the company access to $300,000 in financing. Many in the industry are concerned that will no longer be an option or companies will have to find new sources of financing.
Apparel industry veteran Ron Perilman, owner of Los Angeles–based misses contemporary apparel maker City Girl Inc., said the merger will not have a huge effect on his business. Perilman said, in recent years, apparel companies have already taken hits from retail consolidation and declining specialty store business. “The number of factors is consummate with the reduction of retail stores that would be factored,” he said.
CIT’s size and penetration in the industry could be an asset, according to Ilse Metchek, executive director of the California Fashion Association.
“CIT is the most professional and has developed a following among all levels of business,” she said. “They can differentiate their services to those companies. That way, the economy of scale will make it more efficient for the retailer and the manufacturer.”
CIT’s Cohen said: “We are happy to acquire these factoring assets from HSBC. Many of our clients have been with CIT for generations, and we look forward to offering our new clients the same broad range of services that will help them grow, just as we’ve done with our other clients.”
