HSBC today revealed it would try to raise £12.5 billion through a UK rights issue, as it announced both a 62% drop in profits in 2008 and intention to close its US consumer finance business.
The bank's pre-tax profits dropped from $24.2 billion in 2007 to $9.3 billion in 2008. In North America, it made a total loss of $15.5 billion, mainly due to the poor performance of its personal financial services business.
"The significant deterioration in US employment and the economic outlook in the fourth quarter of 2008 were the primary factors in causing us to write off all the remaining goodwill carried on our balance sheet in respect of our personal financial services business in North America," said group chairman Stephen Green in a statement.
The proposed rights issue will offer five billion shares to UK shareholders at a heavily discounted rate of 254p per share, a price 48% lower than the bank's closing price of 491.25p on Friday, February 27. The shares fell heavily today, closing at 399p. Subject to shareholder approval on March 19, the rights issue will offer five discounted shares for every 12 ordinary shares in an effort to raise the targeted £12.5 billion of extra capital.
HSBC said today the rights issue would add 150 basis points to its capital ratios, strengthening its Tier 1 ratio to 9.8% from 8.3% as at December 31 2008. The bank wants to use the extra capital for support during the downturn, allowing it to concentrate on its core emerging markets and faster growing businesses.
"Over the past 12 months, many of our competitors have received significant government capital injections - something we said we could not envisage - or have raised capital from shareholders and other investors," said Green. "This capital raising will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events."
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