HSBC to scale back US lending and Considers Raising Capital

Discussion in 'Wall St. News' started by ASusilovic, Mar 1, 2009.

  1. HSBC will on Monday announce plans to scale back its US consumer finance operations as the bank launches a £12bn-plus ($17bn) rights issue designed to re-establish its position as one of the world’s best capitalised banks.

    HSBC is expected to say that it is further shrinking HSBC Finance Corporation, its US-based credit card and mortgage lender, which has suffered mounting losses as a result of the sub-prime mortgage meltdown and the subsequent recession in the United States.

    The London-based company is also expected to write-off much of the goodwill on its balance sheet associated with the business, which it bought for $14bn in 2003, though this charge does not affect its capital position.

    The US sub-prime consumer lending operations will be closed to new business, people familiar with the issue said, although it will continue to issue credit cards to existing borrowers with poor or patchy credit history.

    HSBC has already stopped writing new sub-prime mortgages in the US and has closed down its car loans business. It has also transferred loan portfolios to other parts of the bank in order to help shrink the balance sheet of its US consumer finance arm.

    However, executives have in the past expressed their commitment to the business, arguing that sub-prime lending would once again become profitable when the US economy recovers.

    The cut-backs come as HSBC attempts to restore its global supremacy in the banking industry in terms of capital strength, by raising more than $17bn in new capital. The terms were being finalised on Sunday but some shareholders were briefed on Friday about the rights issue, designed to raise $16bn to $18bn through a deeply discounted issue of new shares.

    HSBC will also cut the fourth quarter dividend from 39 centsin 2007 to about 8 cents, and outline dividends for 2008 that will put the shares on a yield about 5½ per cent.

    The offering, which is being underwritten by a consortium of global banks led by Goldman Sachs and JPMorgan Cazenove, is expected to set a new record for the largest rights issue to be funded by private investors. The moves are expected to boost HSBC’s tier one capital ratio - a measure of balance sheet strength - above 10 per cent, from 8.9 per cent at the end of September.

    HSBC executives are likely to bill the rights issue as a positive move to give the bank a renewed competitive advantage over rivals, after the government-backed recapitalisations of lenders such as Royal Bank of Scotland and Citigroup have eroded its historical position as one of the world’s best-capitalised banks.

    They will also suggest that the extra capital gives the bank the firepower to pursue potential acquisitions as the fall-out from the global financial crisis continues. HSBC is seen as a leading candidate to buy the Asian assets of RBS, which were formally put up for sale last week.

    HSBC declined to comment.
  2. m22au


    LONDON (MarketWatch) -- HSBC (UK:HSBA:
    UK:HSBA 491.25, 0.00, 0.0%)
    (HBC: HSBC Hldgs Plc

    said Monday that it will launch a 12.5 billion pound ($17.7 billion) rights issue in a move to enhance its capital strength.

    The group said shareholders will be able to buy five new shares at a price of 254 pence each for every 12 existing shares they hold. The rights issue is at a 48% discount to Friday's closing price of 491 pence.


    m22au comment:

    Theoretical ex rights price is:

    (5 * 254) + (12 * 491) / (12+5)
    7162 / 17 = 421.29 pence
  3. Sure, but as it is the only bank of prestige existing without government help, I think the offering will be oversubscribed "several" times...