HSBC posts 70% dive in net, to raise US$17.7b new funds

By Carlo Piovano | March 3, 2009, Tuesday |

Print Edition

HSBC PLC, Europe's largest bank by market value, yesterday reported a 70-percent plunge in last year's net profit and said it would raise US$17.7 billion in new capital through a share issue, while cutting 6,100 jobs as it shutters consumer loan businesses in the United States.

HSBC said it would scale back lending in the US after being stung by the collapse in subprime mortgage-backed securities although its HSBC Bank USA branch retail banking business will remain.

By turning to investors for new capital instead of asking for government aid, the bank would avoid the strings that go with the bailouts given to other British banks. It also said it would cut its dividend and not pay bonuses to top executives.

Last year, net profit tumbled to US$5.7 billion from US$19.1 billion a year earlier as the company wrote down the value of assets, particularly in the US.

The markets were spooked by HSBC's report, sending the shares down 20.2 percent at 392.25 pence (US$5.53) in midday trading yesterday on the London Stock Exchange.

Analysts said the size of the share issue and writedowns scared off potential investors.

"What is perhaps most worrying is the fact that HSBC was seen as better placed than most of its peers and essentially any hope that confidence was returning to equities has been quashed once again," said Matt Buckland, a dealer at CMC Markets.

The company said senior executives, including CEO Mike Geoghegan, will not receive any bonuses for last year.

That decision comes amid a storm of public outrage about bankers' bonuses, in particular the revelation that Fred Goodwin, former CEO at Royal Bank of Scotland, will receive a 693,000-pound annual pension. RBS has since Goodwin's departure in November become mostly state-owned amid record losses, and the British government has recently said it will seek to prevent Goodwin from receiving the money, which he has said he would try to keep.

Last year, HSBC set aside US$24.9 billion in provisions for markdowns such as bad loans and credit risk, up sharply from the US$17.2 billion in 2007.

On top of this, HSBC wrote off all the goodwill the intangible value of an asset, such as a brand name on its US personal finance operations, to the tune of US$10.6 billion.

Finance

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HSBC posts 70% dive in net, to raise US$17.7b new funds

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