London: European lender HSBC Holdings Plc. plans to raise £12.5 billion (Rs92,125 crore) in Europe’s biggest rights offering as it eliminates 6,100 jobs and closes consumer lending units in the US after subprime losses cut profit.
HSBC, Europe’s largest bank by market value, will sell shares for 254 pence each, with existing investors able to buy five shares for every 12 they already own, the company said in a statement on Monday. The stock fell 9.2% to 446 pence as of 9:03 am in London.
The bank was the first European lender to post subprime losses after it bought US-based Household International, now named HSBC Finance, in 2003.
Recession-hit: HSBC headquarters in London. The bank reported a pretax loss of $15.5 billion from North American operations. Chris Ratcliffe / Bloomberg
HSBC said on Monday it would close the unit’s HFC and Beneficial arms in five-seven years. The parent company, which gets at least 75% of profit from emerging markets, must now cope with recessions in some Asian economies.
“They face the threat of rising bad debts in Asia going forward and a sore in the US,” said Simon Willis, an analyst at NCB Stockbrokers Ltd in London who has a “sell” rating on the stock. “The rights issue is not a huge surprise and is sensible in the circumstances.”
Net income for 2008 fell to $5.73 billion (Rs29,681 crore) compared with $19.1 billion the previous year, the London-based lender said. That was lower than the $13.6 billion median estimate of 10 analysts in a Bloomberg survey. HSBC also cuts its full-year dividend by 29% to 64 cents a share.
HSBC reported a pre-tax loss of $15.5 billion from North American operations, compared with a profit of $91 million in 2007. In Europe, pre-tax profit rose to $10.9 billion from $8.6 billion. Profit from Hong Kong fell to $5.46 billion from $7.34 billion, while earnings from the rest of Asia rose to $6.47 billion from?$6.01 billion.
No executive directors will receive bonuses for 2008, HSBC said in the statement.
HSBC will shut most of its 800 branches in the US, chief financial officer Douglas Flint said on a conference call with reporters. The bank will keep its credit card operation in the US, which represents about $50 billion of assets, he said.
“In 2003, when we acquired Household, nobody foresaw recession and depression in the US,” he said. “We are playing the ball from where it lies.”
While HSBC has set aside at least $53 billion to cover bad loans in the past three years, it has avoided taking UK government funding, unlike Royal Bank of Scotland Group Plc. and Lloyds Banking Group Plc.
The rights offer will push HSBC’s tier 1 capital ratio, a key measure of financial strength, to 9.8%, the bank said in the statement. That’s a 1.5 percentage points increase.
“Today HSBC is well capitalized, liquid and profitable,” chairman Stephen Green said in the statement.
Goldman Sachs Group Inc. and JPMorgan Chase and Co. are leading a group of banks that have underwritten the share sale, guaranteeing they will buy any shares investors may not order.
Mark Barton and Andrew MacAskill contributed to this story.