HSBC (NYSE: HBC) has decided to sell off its U.S. credit card arm to Capital One Financial (NYSE: COF) -- yet another cost-cutting initiative by the European banking giant to enable it to focus on core businesses.

The transaction includes the sale of HSBC’s credit card operations including gross customer loan balances, together with certain real estate and other assets and liabilities. It includes about $30 billion of credit-card loans, prime and subprime, and private-label credit cards (cards that have been branded with a specific company name). But the unit to be sold does not include HSBC Bank USA’s $1.1 billion credit card program.

HSBC is focusing on international business and doing away with its non-core businesses. It recently announced a plan to cut 30,000 jobs worldwide and sell off almost half of its retail banking branches in the U.S. to First Niagara Bank (Nasdaq: FNFG) for around $1 billion as part of its cost-cutting efforts. The selling of its credit card business, I believe, will further strengthen its efforts. Here’s why.

The impact
The deal is expected to reduce risk-weighted assets by up to $40 billion under U.K. regulatory rules and increase HSBC’s consolidated core tier 1 capital adequacy ratio to 11.4% from 10.8%. Besides, the sale will free up capital and the proceeds from it can be used for the repayment of debt, capital redeployment subject to regulatory approval, and for other general corporate purposes.

Capital One, on the other hand, seems keen on buying HSBC’s credit card unit, as the transaction would make it the third-largest issuer of private-label credit cards. It is also buying ING's (NYSE: ING) U.S. online bank for $9 billion.

The Foolish bottom line
Selling off the credit card arm can be seen as HSBC’s strategy to exit consumer and subprime lending in the U.S and focus more on its core operations. This, along with the layoffs and divestments, looks like a smart move to cope with weaker revenues in the U.S and Europe.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.