The deal, which will significantly boost HSBC's American banking presence, will also result in the bank taking control of Safra Republic Holdings, the Luxembourg-registered holding company for a chain of Safra-owned private banks servicing wealthy individuals in Switzerland, Monaco, France and the Channel Islands.
HSBC is to fund the deal partly through a $3bn issue of new shares and partly through the issue of some preference shares and debt securities, and from existing resources.
The takeover is the biggest acquisition in HSBC's history, outstripping its pounds 4bn purchase of Midland Bank in 1992. It is also the largest purchase of a US bank by a foreign entity, just ahead of the $10bn purchase of Bankers Trust by Deutsche Bank. It follows HSBC's recent New York listing and will push its centre of gravity further away from its Asian roots towards the Western hemisphere.
Putting together Republic's 83-strong-branch network with Marine Midland, HSBC's US banking business with 374 branches in New York state, will create the third-largest banking network in New York State, with 2 million customers and assets of nearly $85bn.
The deal will also double the size of HSBC's private banking business.
John Bond, the chairman, said the deal would yield $300m of post-tax cost savings annually from the elimination of head and back office overlaps, after restructuring charges of $450m in 1999 and 2000.
Mr Bond said yesterday: "The acquisitions we have announced today will bring together our two complementary private banking franchises. They will also significantly enhance our position in the world's largest economy, giving us an additional 1 million customers in a mature and stable market."
HSBC shares fell 71p to 2,120p because of the capital raising and on concern that at two-and-a-half times book value the bank was overpaying.
Republic Bank of New York, the third-largest deposit taking institution in the New York city area, had been widely seen as a potential candidate for sale since September when it lost $200m on the collapse of the Russian government bond market.
Mr Safra, 66, who founded Republic from scratch in 1966, has also been suffering from Parkinson's disease, raising questions in investors' minds about how long he could continue hands-on management of a group this size. He is to stay on as honorary chairman.Reuse content