HSBC raising new capital and cutting jobs
HSBC Holdings said on March 2, 2009 that it would raise a total of $17.7 billion in new capital from shareholders in a rights issue to strengthen its financial structure after reporting a more than 50% fall in 2008 earnings and, as expected, a surge in bad debts in the US.
The largest bank in Europe is in the process of offering 5.1 billion new shares at 254 pence apiece, or a 48% discount on Friday’s closing price, for subscription by its current shareholders. In Hong Kong, the issue price per new share is HK$28, or a 50.2% discount on its Friday close of HK$56.95.
Stephen Green, the Group Chairman, disagreed that the rights issue had appeared too late. He said it was the right time when they got the information about their performance in 2008.
Douglas Flint, the HSBC finance director, said: “We want to position ourselves both defensively for turbulent years and opportunistically for the options that will appear.”
Patrick Shum, Karl Thomson Securities’ chief portfolio strategist, said HSBC had lost the golden time for issuing new shares—when the Hang Seng Index was above the 150000-mark. He said that the management might think that they could deal with the problems by themselves. According to Patrick Shum, individual shareholders have no option but to buy the new shares. Otherwise, their shareholding will be diluted and they will lose money, since many of them have been holding the shares for long.
The rights issue is subject to shareholder approval on March 19. This will add 150 basis points to HSBC’s capital ratios, strengthening the core tier 1 ratio to 8.5 percent.
HSBC Holdings also said that after it was hit by a goodwill impairment charge of $10.6 billion in the US, the pretax profit of 2008 fell 62% to $9.3 billion from $24.2 billion of 2007. Excluding the charge, pretax proﬁt fell by 18% to $19.9 billion, slightly ahead of the $19 billion predicted by the analysts.
HSBC cut its dividend for the full year by 29% to 64 cents per share and said it would close its troubled US consumer loans business. The bank maintained a dividend growth of 10% or more per year up to 2007.
HSBC’s losses in North America in 2008 was $15.5 billion in total, including the $10.6 billion goodwill impairment charge, due to its troublesome acquisition of Household, the US consumer lending business it bought six years ago for $14 billion.
“With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” Stephen Green said, admitting for the ﬁrst time that HSBC had made a wrong decision in the acquisition of Household. He also said the credit environment has experienced fundamental changes over the past year. “It’s a painful decision to close the business,” he said, “We don’t want to make people redundant as well.”
HSBC said it would close most of its HFC and Beneficial-branded US branch network, leading to a loss of 6,100 jobs and that, with the exception of credit cards, the US divisions would write no further consumer ﬁnance business.
Group-wide, the bank said that losses on bad loans jumped 44% versus 2007 to $24.9 billion.
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