HSBC sells U.S. card unit to Capital One for $2.6 billion

HONG KONG (Reuters) - HSBC Holdings plc has agreed to sell its U.S. credit card and retail services unit to Capital One Financial Corp for a premium of about $2.6 billion, as Europe's top bank streamlines its mammoth operations by shedding non-core businesses.

The sale of the arm, which had gross assets of $30.4 billion at the end of June, is part of a radical overhaul and $3.5 billion cost-cutting plan under new Chief Executive Stuart Gulliver.

The business earned $600 million in after-tax profit for the half year ended June 30, 2011. The deal would boost HSBC's consolidated core Tier 1 capital adequacy ratio by 60 basis points to 11.4 percent at the end of June.

"This transaction continues the execution of the strategy we announced at our investor day ... to focus our U.S. business on the international needs of customers in commercial banking, global banking & markets," Gulliver said in a statement.

He said the transaction was dilutive in the short term, but will cut group risk-weighted assets by up to $40 billion and earn help HSBC to earn an estimated post-tax gain of $2.4 billion.

Capital One will pay the consideration in cash and stock, with HSBC agreeing to accept up to $750 million of Capital One stock as part of the deal.

Capital One has been seen as a motivated buyer for the business as it looks to bulk up on assets after the ING Direct deal. Wells Fargo & Co was also interested in buying the portfolio, sources have said previously.

HSBC last week said it will shed nearly half of its underperforming U.S. branch network, selling 195 branches to First Niagara Financial Group Inc for $1 billion and closing 13 more.

HSBC has been criticized for spreading itself too widely, gathering roughly 95 million customers across 87 markets, and Gulliver is aiming to put focus back on profitability.

The deal marks the second time Capital One has swooped for unwanted U.S. assets from a retreating European bank in recent months. The McLean, Virginia-based firm said in June it was buying ING's U.S. online bank for $9 billion in cash and stock.

(Reporting by Denny Thomas; Editing by Ken Wills)