Big lenders forced to bank on 'untouchables'

......The appeal of the consumer - even the most humble one - has grown during the current bear market, which has cut into the returns that banks earn from serving the rich and powerful.

The biggest recent wager has been placed by HSBC, which last month completed its $14bn purchase of Household International, a US consumer lender.

The deal means that the two biggest banks in the world by market value - Citigroup and HSBC - have become the two biggest players in "subprime" lending in America.

.......Subprime borrowers are not necessarily poor, but they do have tarnished credit histories. In the US, they represent a large and rowing market,.....- amounted to an estimated $250bn-$300bn.

......However, the push into consumer financial services such as subprime lending looks virtually inevitable given the market forces reshaping banking in recent decades.

......Last year, Citigroup's consumer finance operations in North America had a net interest margin, the difference between the cost of its borrowings and its loans, of 8.47 per cent. In other areas of the world, its net interest margin on consumer finance was a staggering 21.14 per cent - meaning it could make money even if it suffered high levels of credit losses.

Big lenders have advantages in this kind of risky businesses because their credit ratings are high and their borrowing costs are low. They can also afford the technology that makes it possible to process large amounts of information about consumers and reach them efficiently.......