Hong Kong: HSBC Holdings Plc., Europe’s largest bank by market value, fell in London trading after Morgan Stanley analysts predicted it may have to raise as much as $30 billion (Rs1.46 trillion) and cut the dividend in half as earnings drop.
London-based HSBC slid 8.6% to 585 pence (Rs415.35) at 11.20am local time, the lowest since February 1999. The shares closed down 4.1% in Hong Kong.
HSBC’s profit is likely to fall “sharply” this year and won’t recover until 2011 at the earliest, Morgan Stanley analysts, including Michael Helsby and Anil Agarwal, said in a note on Tuesday. HSBC, Britain’s best performing bank stock last year and the only one so far to avoid raising new capital, is down 11% this year in London trading, more than any other UK bank.
“I think every man and his dog knows that HSBC’s capital position has been eroded,” said Simon Maughan, a London-based analyst at brokerage MF Global Securities Ltd, who has a “buy” rating on the stock. “HSBC massively outperformed in the last year, and if I was an investment manager in the UK, I may think that I want to take a bit of profit.”
The worst financial crisis since the Great Depression is hurting banks worldwide. Deutsche Bank AG, Germany’s biggest bank, reported a loss of about €4.8 billion (Rs31,056 crore) as it increased provisions for bad debt. New York-based Citigroup Inc. is ceding control of its Smith Barney brokerage to Morgan Stanley and may also dump the CitiFinancial consumer lending unit, people familiar with the matter said.
HSBC was the first bank in Europe to warn of losses on subprime mortgages in the US. Banks and brokers worldwide have been forced to raise nearly $800 billion since the credit crisis started in 2007.
“Expectations for capital- raising activity will create selling pressure on the stock,” said Max Chong, an analyst at Hong Kong-based Quam Ltd, who has an accumulate rating on HSBC. “Looking on the good side, we believe share prices usually bounce back gradually” after the sale is completed, he added.