SUNDAY TELEGRAPH 1.3.09
1. HSBC to raise £12bn in rights issue
Bank to close US lender HFC to new business and announce swingeing
dividend cut .
By Louise Armitstead and Mark Kleinman
HSBC, Europe's largest bank, will tomorrow announce the closure of
its troubled US mortgage lending operation to new business alongside
plans to cut its dividend and raise more than £12bn in a deeply-
discounted rights issue.
The developments will underline the depth of the international
financial crisis and, in the context of HSBC's substantial operations
in Asia, raise questions about the deteriorating health of the global
economy.
HSBC, led by Stephen Green, its executive chairman, will say that it
is drawing a line under the continuing problems of HFC, the consumer
finance operation in the US which has racked up billions of pounds in
losses since it was acquired six years ago, by putting it into run-off.
The bank plans to announce a two-for-five rights issue, underwritten
by Goldman Sachs and JP Morgan Cazenove, which will be priced at
about 300p, a discount of more than 40pc to Friday's closing price of
491.25p.
It will also cut its dividend by at least a third, according to
people close to the bank.
The precise size and terms of the fundraising had not been decided
last night, and people close to HSBC said it could reach as high as
£13bn. That sum would make it the largest-ever rights issue by a
British company, following Royal Bank of Scotland's £12bn rights
issue last year.
The fundraising will be announced alongside HSBC's annual results
tomorrow.
Mr Green and Michael Geoghegan, HSBC's chief executive, are expected
to say that the injection of new capital will increase its core tier
one capital ratio, a key measure of its financial health, to about
9.5pc, which would make it one of the world's best-capitalised banks.
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2. HSBC move points to depth of crisis
By Mark Kleinman
And then there were two. HSBC's decision to tap investors for about
£12bn in a share issue to be announced tomorrow means the number of
international banks which have stood unsupported since the start of
the credit crisis will have diminished still further.
HSBC is raising the money from a position of relative strength. Its
geographical diversity and historic commitment to maintaining
relatively high capital buffers have meant that its stability has not
been in question. Rather, the fact that it will cite the severity of
the global economic downturn in its statement tomorrow underlines the
point that immunity to the crisis is a rather quaint notion.
Just as important for HSBC will be what it says about HFC, the US
mortgage lender which it bought in 2004 and which has been a
millstone around its neck. By closing it to new business, HSBC is
swallowing its pride - albeit at significant cost - before the £12bn
it is raising disappears as well.
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