London: HSBC will on Monday launch a rights issue to raise up to $18 billion to shore up a balance sheet showing strain from a sharp rise in bad debt in the United States, people familiar with the matter said.
The bank’s Hong Kong-listed shares were suspended from trading on Monday before the opening of the market, and the bank moved up a scheduled media briefing by 45 minutes to 0800 GMT.
HSBC, which at Friday’s close was worth half the market value of Industrial and Commercial Bank of China Ltd (ICBC), will unveil the cash call early on Monday in London alongside 2008 results that will show profits fell by about a fifth as recession deepens across the world.
HSBC will seek to raise as much as $18 billion, one person familiar with the matter told Reuters on Saturday. Goldman Sachs, JPM Cazenove and HSBC will underwrite the offer, sources said.
HSBC is also expected to slash its dividend and further shrink its US consumer loans business.
The London-based bank declined to comment.
HSBC is already running down much of its US loan book, and its US subprime consumer lending operations will be closed to new business, the Financial Times reported, adding HSBC will also write off much of the goodwill on its balance sheet associated with its Household business, the report said.
Bad debts are also rising in Europe and Asia.
The rights issue would be the biggest in Britain if it surpasses the £12 billion raised by crisis-struck rival Royal Bank of Scotland last April.
Several investors told Reuters last week they would support a rights issue, and wanted management to act quickly to remove uncertainty hanging over its share price.
“We’re not too worried about the fund raising. The question is the market’s perception of the plan, whether the amount they’re going to raise is enough or not,” said Y.K. Chan, a fund manager at Philip Capital Management in Hong Kong.
“The reaction to the plan could be very extreme and there will be a tug-of-war in the market,” he said.
Shares are likely to be sold at a discount of 35-40%, one source said.
HSBC has traditionally been one of the best capitalized banks in the world and has not raised capital while others scrambled for cash as the credit crisis deepened.
But while it may be able to ride out the storm, a delay may make any cash call it needs at a later stage more painful and investors may prefer to raise the cash now.
HSBC is expected to report a 22% fall in annual profits to $19 billion, according to a consensus of analysts polled by Reuters Estimates.
Its bad debts are forecast to jump to $22-$24 billion from $17 billion, largely due to North American impairments of around $16 billion, analysts estimate.
That stems from its troubled acquisition of Household, the US consumer lending business bought six years ago for $14 billion.
HSBC’s Tier-1 capital was 8.9% at end-September, above the European average and near the top of its targeted range of 7.5% to 9%. Its fundraising would give the bank one of the strongest capital positions in the world, with a Tier-1 ratio probably of over 10%.