HSBC Set to Unveil $18 Billion Rights Issue, Profit Dip

HSBC on Tuesday will launch a rights issue to raise up to $18 billion to shore up a balance sheet showing strain from a sharp rise in bad debt in the United States, people familiar with the matter said.

Kirsty Wigglesworth / AP An HSBC sign is shown at a branch in London.

The lender's Hong Kong-listed shares were suspended from trading on Monday before the opening of the local market pending announcement of a corporate action to be made around the same time as the annual results release later on Monday, the bank said in a statement. Trading was expected to resume on Tuesday, it said.

Europe's biggest bank will unveil the cashcall early on Monday in London alongside its 2008 results, which will show profits fell by about a fifth as recession deepens across the world.

HSBC will seek to raise as much as $18 billion, one person familiar with the matter told Reuters on Saturday. Goldman Sachs, JPM Cazenove and HSBC will underwrite the offer, sources said.

HSBC is also expected to cut its dividend payout and further shrink its U.S. consumer loans business. The London-based bank declined to comment.

HSBC is already running down much of its U.S. loan book, and its U.S. sub-prime consumer lending operations will be closed to new business, FT.com said on Sunday. HSBC will also write-off much of the goodwill on its balance sheet associated with its Household business, the report said.

Bad debts are also rising in Europe and Asia.

Investors To Support Rights Issue

The rights issue would be the biggest ever in Britain if it surpasses the 12 billion pounds raised by crisis-struck rival Royal Bank of Scotland last April.

Several investors told Reuters last week they would support a rights issue, and wanted management to act quickly to remove uncertainty hanging over its share price.

Shares are likely to be sold at a discount of between 35 percent and 40 percent, one source said.

HSBC has traditionally been one of the best capitalized banks in the world and has not raised capital while others scrambled for cash as the credit crisis deepened.

But while it may be able to ride out the storm, a delay may make any cash call it needs at a later stage more painful and investors may prefer to raise the cash now.

HSBC is expected to report a 22 percent fall in annual profits to $19 billion, according to the consensus of analysts polled by Reuters Estimates.

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Its bad debts are forecast to jump to $22-24 billion from $17 billion, largely due to North American impairments of around $16 billion, analysts estimate.

That stems from its troubled acquisition of Household, the U.S. consumer lending business bought six years ago for $14 billion.

HSBC's tier 1 capital was 8.9 percent at the end of September, above the European average and near the top of its targeted range of 7.5 percent to 9 percent. Its fundraising would give the bank one of the strongest capital positions in the world, with a tier 1 ratio probably of over 10 percent.

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