Wednesday, March 4, 2009

HSBC's rights issue: Ruffled feathers

HSBC plans to raise $17.7 billion of equity a sign of weakness or strength?

APOLOGIES are all the rage in banking now. As well as a general grovel on behalf of the industry, on Monday March 2nd HSBC said sorry for its original sin in 2003: buying Household, an American consumer-credit company that has since blown up. “With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” the bank’s chairman said. Europe’s biggest lender by market value now hopes to draw a line under the affair by winding up the bulk of its American consumer-credit book. For good measure it also plans to raise $17.7 billion, in Britain’s biggest-ever rights issue and slash its dividend, after 15 years of consecutive double-digit growth.

That may all sound like a disaster but, depressingly, HSBC is one of the best-performing banks in the western world right now. Its 2008 results were riddled with one-off items, but the bank still made an annual pre-tax profit of over $9 billion in a year when most peers made losses. Bad debts are rising outside America, but at a moderate rather than seriously alarming pace. HSBC’s share price has roughly halved in the past year—less catastrophic than many competitors, a few of whom have just entered the deadly embrace of their governments. Its deposits still exceed loans made, making it relatively less dependent on the whims of wholesale markets for funding. ...


[Source: The Economist: News analysis - Posted by FreeAutoBlogger]

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