Up to 200 employees of HSBC Mortgage Corp. in Depew could lose their jobs early next year, after HSBC Bank USA agreed Monday to transfer its retail mortgage processing and servicing operation to industry giant PHH Mortgage Corp.
Under the agreement, which is effective immediately, PHH will manage HSBC's back-office mortgage business, processing new mortgage applications and servicing more than $51 billion in loans. That includes both the bank's prime mortgage loan portfolio, totaling $15.5 billion, as well as a separate $36.6 billion portfolio of loans that HSBC has been servicing for other lenders.
HSBC will retain ownership of the loans, so PHH is not paying any purchase price or getting any assets. Rather, HSBC will pay fees to PHH for providing services.
"This is a back-end change," HSBC spokesman Neil Brazil said. "Our actual mortgage customers will continue to receive correspondence on HSBC-branded letters. They should experience no change."
The mortgage operation employs a total of 680 workers in Depew, Brazil said. Of those, about 400 employees will transfer to PHH, which said it plans to maintain operations in the Buffalo area. Eighty other employees will stay with HSBC to oversee the relationship. "We've immediately found a home for 400 people," Brazil said.
That still leaves up to 200 workers who are being "displaced," he said. However, PHH has 104 open positions that are tied to the HSBC business but haven't been filled. The remaining HSBC employees are "being encouraged to apply" for those jobs, and will be considered first, Brazil said. "PHH will not be looking outside that core unless they cannot fill those roles," he said.
Those who don't find jobs with PHH or elsewhere with HSBC will receive 90 days' notice. But Brazil stressed that they won't actually be affected until the business actually transfers, which isn't expected until the first quarter of 2013.
Affected employees will receive more information on the transition and other arrangements going forward, the bank said.
"As it stands, we have 400 definitely going [to PHH], 100 most likely going, and then everyone else will receive 90 days' notice and will not be finally impacted until the deal closes in the first quarter," Brazil said.
The 172,630-square-foot building at Walden Avenue and Dick Road, which HSBC leases, has a total of about 1,000 employees, but about 320 of them work for other parts of the bank, supporting commercial and other lines of business that are not connected with the mortgage unit. Brazil said the bank does "intend to remain in that building for the time being," but he wouldn't say how long that may be or how long the lease is for.
The announcement ends uncertainty and speculation about what would happen to HSBC's mortgage operation. Such worries about the future of the operation and its jobs have only grown in recent months, as the region awaited a decision by HSBC about what it would do with a business it appeared to no longer need or want.
Parent HSBC Holdings PLC of London has been selling or closing underperforming business operations around the world as part of a global restructuring aimed at cutting 30,000 jobs and up to $3.5 billion in annual costs by the end of 2014. HSBC reports first-quarter profits today.
The bank agreed last July 31 to sell 195 upstate New York and southwestern Connecticut branches to First Niagara Financial Group for $1 billion, as part of a conscious decision to downsize its retail banking business in the United States.
That deal, which includes $15 billion in deposits and $2.8 billion in loans, removes HSBC entirely from the retail banking and small-business lending scene throughout upstate New York.
The bank has been conducting a separate review of the mortgage business but had not said what it would do until now. As a result, many observers wondered whether it would even need a mortgage operation anymore, given its slimmed-down profile.
However, the bank will continue to operate branches in the New York City area and other parts of the country where it believes it can grow profitably, and it will also offer commercial, corporate, private and investment banking services. As part of that, it will continue to offer mortgages through its branch network, with its in-house sales force focusing on HSBC customers, but it will utilize PHH's mortgage capabilities to handle the loans.
The PHH contract does not include those customers and mortgages at branches that are being sold to First Niagara, which has its own mortgage processing and servicing arrangements.
"This agreement is a continuation of HSBC's strategy to reposition our U.S. business and ensures we manage our mortgage activities most efficiently," said Irene Dorner, president and CEO of HSBC USA. "We look forward to this new relationship with PHH Mortgage and the outstanding support they will provide."
PHH, of Mount Laurel, N.J., is a subsidiary of PHH Corp., a leading outsourcing provider of private-label mortgage services for other companies, including major real estate brokerage firms, banks and government agencies. It's one of the nation's top five originators of retail residential mortgages and one of the 10 largest mortgage servicers in the country.
"PHH Mortgage and HSBC are working closely together to ensure seamless service throughout the transition," the bank said in its announcement.