| GEO Business|
| HSBC to raise £12 bn through share sale|
| Updated at: 0407 PST, Sunday, March 01, 2009|
LONDON: HSBC, Europe’s largest bank, will tomorrow announce the closure of its troubled US mortgage lending operation to new business alongside plans to cut its dividend and raise more than £12bn in a deeply-discounted rights issue.
The developments will underline the depth of the international financial crisis and, in the context of HSBC’s substantial operations in Asia, raise questions about the deteriorating health of the global economy.
HSBC, led by Stephen Green, its executive chairman, will say that it is drawing a line under the continuing problems of HFC, the consumer finance operation in the US which has racked up billions of pounds in losses since it was acquired six years ago, by putting it into run-off.
The bank plans to announce a two-for-five rights issue, underwritten by Goldman Sachs and JP Morgan Cazenove, which will be priced at about 300p, a discount of more than 40pc to Friday’s closing price of 491.25p.
It will also cut its dividend by at least a third, according to people close to the bank.
The precise size and terms of the fundraising had not been decided last night, and people close to HSBC said it could reach as high as £13bn. That sum would make it the largest-ever rights issue by a British company, following Royal Bank of Scotland’s £12bn rights issue last year.
The fundraising will be announced alongside HSBC’s annual results tomorrow.
Mr Green and Michael Geoghegan, HSBC’s chief executive, are expected to say that the injection of new capital will increase its core tier one capital ratio, a key measure of its financial health, to about 9.5pc, which would make it one of the world’s best-capitalised banks.
However, the rights issue will add fuel to a campaign by the fund manager Knight Vinke, which has been calling for HSBC to allow Household to go bankrupt.
Last night, Eric Knight, chief executive of Knight Vinke, said that the rights issue provided a further vindication of the fund manager’s campaign of activism, which began in 2007.
“We have been saying for almost two years that Household’s performance is significantly worse than the board and management of HSBC have been willing to admit,” he said.
“The failure to deal with Household means that a rights issue has become inevitable, as we have also been saying for some time now.
“Unless HSBC takes steps to separate Household from the rest of HSBC, it is unavoidable that it will have to take further write-offs, and this will inevitably affect the stock price.”
HSBC’s major Middle Eastern investors, Dubai International Capital and Saad, the Saudi group, are expected to take up their rights as part of the fundraising.