Mon, Mar 02, 2009 page10

• HSBC may sell off US$17 billion in shares

  RAISING CAPITAL: CLSA Asia-Pacific Markets cut its price target for HSBC last month because the firm says the bank may have to raise US$15 billion and cut its dividend

  • BLOOMBERG
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  HSBC Holdings Plc, Europe’s biggest bank by market value, may raise as much as £12 billion (US$17 billion) to bolster capital as bad US loans erode earnings, two people with knowledge of the situation said.

  The bank will consider a rights offering, said the people, who declined to be identified because terms of the transaction haven’t been completed. The Financial Times reported on Saturday that Goldman Sachs Group Inc and JPMorgan Cazenove were hired to underwrite the sale.

  Financial institutions in Europe, led by UBS AG and Royal Bank of Scotland Group Plc, have been forced to raise more than US$355 billion because of credit market losses and investment writedowns, data compiled by Bloomberg showed. Higher capital levels would give London-based HSBC the ability to buy assets from cash-strapped rivals, the Times said.

  

  People ride a tram past the headquarters of HSBC in Hong Kong on Friday.

  PHOTO : AFP

  “The share sale could eliminate market concerns about the bank’s capital problem,” Lee Yuk-kei, Hong Kong-based analyst at Core Pacific-Yamaichi International Ltd, said yesterday.

  Richard Lindsay, a London-based spokesman for the bank, declined to comment on the capital-raising plans.

  The share sale will probably be announced today when the company releases second-half results, the Times said.

  “HSBC isn’t raising capital for fear of current losses, it is looking forward and putting itself in a very strong position beyond this crisis,” said Howard Wheeldon, senior strategist at BGC Partners in London.

  The offering likely will set a UK record for a rights offer funded by private investors, the newspaper said, surpassing Royal Bank of Scotland’s £12 billion sale last April.

  HSBC, unlike Royal Bank of Scotland, hasn’t been bailed out by the UK government. The company has, though, racked up US$42.3 billion of bad-loan provisions since the start of 2006, chiefly at its US unit. Banks and insurers worldwide have suffered more than US$1.1 trillion of losses and writedowns amid the worst financial crisis since World War II.

  “HSBC previously had one of the strongest capital ratios relative to other banks, yet it is now suffering somewhat by comparison as others around them build up capital,” said Mamoun Tazi, an analyst at MF Global Securities Ltd in London.

  CLSA Asia-Pacific Markets cut its price target for HSBC to HK$41 from HK$64 in a Feb. 16 report, saying the bank may have to raise US$15 billion and cut its dividend. CLSA cautioned the funds could be used to cover provisions for bad loans.

  HSBC’s Tier 1 capital ratio — a measure of financial strength — stood at 8.9 percent as of Sept. 30, near the top end of its 7.5 percent to 9 percent range. The company had a loan-to-deposit ratio of 88 percent then.

  In a separate step to retain capital, the bank may be forced to cut its full-year dividend by as much as 50 percent, said Simon Willis, an analyst at NCB Stockbrokers Ltd in London. Derek Chambers, an analyst at Standard & Poor’s Equity Research in London, expects a 20 percent cut in the dividend.

  HSBC has declined 32 percent over the last year, valuing the bank at £59.7 billion.

  The 65-member Bloomberg Europe Banks Index has dropped 68 percent in that period.
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