HSBC to unveil record £12bn-plus share sale
BRITAIN’S biggest bank HSBC will today signal a retreat from its disastrous foray into the US sub-prime lending market as it announces a record rights issue fundraising of more than £12billion.
The FTSE-100 company is to rein in Household, the specialist US lender it bought for $14billion (£1billion) in 2002 only to see it become one of the biggest victims of the crisis in the American home loans market.
It will write off £7billion against the value of the Household business and announce that large parts of the firm, which targeted customers with poor credit records, will stop lending.
Household is forecast to account for two thirds of the £17billion of bad debt provisions expected to be announced by HSBC in its annual results today.
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Despite trying to draw a line under the problems at the business, HSBC could still come under pressure to sell the business from rebel investment fund Knight Vinke, which has been a long-standing critic of the deal.
HSBC will also cut its dividend to shareholders by as much as a third in an effort to conserve cash.
The new rights issue, expected to be bigger than £12billion raised by Royal Bank of Scotland last year, will be at about 295p, a discount of about 40 per cent to Friday’s closing share price of 4911⁄4p.
HSBC is keen to bolster its balance sheet so it does not have to turn to the Government for funding in the same way as rivals RBS and Lloyds Banking Group.
Despite the problems in the US, the group is forecast to report annual profits of about £10.6billion for 2008, down by a third on the previous year.
HSBC’s strong performance in Europe and the Middle East have helped insulate it from the worst effects of the problems in the US but bad debts have begun to rise as the global economy has weakened.
One source said: “It’s a global bank and making quite a bit of money but it swims in the same water as everyone else. It is very powerful but it is not immune from what’s going on.”
Lloyds last night said talks with the Treasury about tapping its asset protection scheme were at an advanced stage.
In New York, insurance giant AIG was close to reaching a deal with the US government that will see it get a cash injection of up to $30billion to stave off collapse.
Details of the bailout will be unveiled today when AIG is due to report a record three-month loss of $60billion.
