HSBC to raise $20 billion through rights issue

28 Feb 2009

Banking group HSBC is set to announce a $20 billion-plus fundraising which could be Britain's largest share issue. The bank is aid to be planning to unveil details of the rights issue as early as with its annual results on Monday, 2 March. the banks is also expected to announce a cut in its dividend.

The fundraising, which is almost certain to be offered in full to the bank's existing shareholders and investors, has been underwritten by Goldman Sachs and JP Morgan Cazenove. HSBC would use the cash to ensure that it has enough capital to cope with a prolonged downturn in global economic activity.

The bank, which has been relatively immune to the credit crisis, has continued to profit from its operations in Europe and the Middle East, which have offset losses in the US. However, its $15.5 billion purchase of US lender Household International in 2003 exposed the bank to the troubled sub-prime mortgage market, where the present economic crisis has its roots.

Market rumours of a £10 billion rights issue or a dividend cut at HSBC have been growing in recent weeks. The bank is predicted to continue to pay large bonuses to its staff this year, despite growing public anger at banking remuneration.

Formerly one of the world's best-capitalised banks, its status has been threatened by government capital injections into other banks in the UK, the Continent and the US. However, it continues to outperform other UK banking stocks.

Despite its problems in the US, HSBC is expected to report profits of about $20 billion for 2008 – driven again by a strong performance in Asia. However, the bank is expected to say that trading in Asia is weakening faster than had originally been predicted, according to various reports.