HSBC Buys Metris for $1.6 Billion

British banking giant HSBC Holdings on Thursday said it will snap up Minnetonka-based Metris Cos., one of the last independent credit card issuers, for $ 1.6 billion in cash.

HSBC Finance is the sixth- largest issuer of MasterCard and Visa cards in the nation. Metris, with headquarters in Minnetonka, Minn., and offices in five states, is the 11th largest issuer of MasterCard and Visa cards. Metris primarily serves the near-prime credit-card market through direct mail and partnership affiliations.

Metris "a bigger customer base for HSBC to mine", Fitch Ratings analyst Pete Shimkus said. "Really a breadth of products they can offer to the Metris customers: home-equity loans, mortgages, auto loans and unsecured personal loans."

"The interesting thing is that many of the U.S. banks spent the last several years getting out of credit cards, and now the monolines that resulted are being bought back by the banks," a London-based banker said.

Metris issues Mastercard and Visa credit cards through it Direct Merchants Credit Card Bank, and targets the moderate income and sub- and near-prime sectors - households with annual income of $ 15,000 to $ 35,000, and individuals with tarnished credit records.

HSBC Finance is the eighth-largest issuer of credit card loans with $ 22.2 billion and 24.3 million accounts as of Dec. 31, 2004, according to CardWeb.com.

The deal offers Metris shareholders $ 911.1 million, or $15 in cash for each of their shares, if the transaction is completed by Dec. 9.

Founded in 1994, Metris went public in 1996 as a spinoff of catalog retailer Fingerhut Cos. The company grew fast through 2000 but was hobbled with soaring defaults when many of its customers couldn't pay their bills in the economic downturn. An accumulation of financial, legal and regulatory problems led to the firing of former CEO Ron Zebeck in 2002.

Since then, Metris has made progress. It posted profits of $36.7 million for the six months ended June 30 vs. losses of $ 50.1 million a year earlier. Revenue rose 60 percent over the same period a year earlier, to $ 329.5 million. But the business is still down significantly since its peak. It has 2.2 million active accounts and about $ 5.9 billion in total loans, compared with 4.9 million accounts and $12 billion in loans at the end of 2001.

Most recently, the Securities and Exchange Commission has been investigating the company's financial records, including its accounting of loan losses in 2001. Metris last month said it faces a possible lawsuit from the SEC regarding its accounting methods.