Page last updated at 19:27 GMT, Monday, 2 March 2009

HSBC in £12.5bn fund-raising plan

'No bonuses' says HSBC chairman

Europe's biggest bank, HSBC, has confirmed it is seeking to raise £12.5bn ($17.7bn) from shareholders through a rights issue in the UK.

The bank's chairman Stephen Green said the funds would help the firm in the uncertain economic environment. He also ruled out cash bonuses for 2008.

The news came as HSBC revealed pre-tax profits for 2008 of $9.3bn (£6.5bn), down 62% on the previous year.

The news contributed to a fall in share prices on the London stock market.

HSBC shares closed down by almost 19%.

Other banking shares were also dragged down, with Lloyds Banking Group falling 15% and Barclays losing 6%. Shares in Royal Bank of Scotland closed down 3%, after falling 13% earlier in the day.

Worldwide shares were also dented by news that US insurance giant AIG made a record loss of almost $62bn in the fourth quarter of 2008 and needed another $30bn from the US government.

'US commitment'

HSBC has been hit by losses in the US sub-prime mortgage market.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

In North America, HSBC reported a loss of $15.5bn. That included a $10.6bn goodwill impairment charge, stemming from its troubled acquisition of the consumer lending business Household.

It said it planned to close the majority of this business in the US. This is expected to result in the loss of about 6,100 jobs.

However, it said it remained "committed to the US".

The bank also cut its dividend for the full year by 29% to 64 cents per share.

"Whether the capital raising is precautionary or a war chest for selective acquisitions remains to be seen, but any such positives are of little interest to a disappointed market," said Richard Hunter, head of UK equities at the stockbrokers Hargreaves Lansdown.

'Targeted acquisitions'

HSBC has issued the cash call, which is the biggest to date seen in Britain, to both shore up its balance sheet and to increase its global market share.

It is offering just over 5 billion shares at 254 pence each - a price that is 48% lower than Friday's close of 491.25p.

Shareholders are due to vote on the rights issue on 19 March.

HSBC logo
HSBC has traditionally been one of the best capitalised banks in the market

Mr Green said the money would be used both to grow its existing businesses as well as to grow through "targeted acquisitions".

"We would focus primarily on emerging markets," he told the BBC.

"It takes us primarily to Asia, the Middle East, Latin America - those kind of parts of the world in which we have a strong franchise and where it makes sense to invest to grow that further."

No government help

In going to shareholders, HSBC follows in the footsteps of Royal Bank of Scotland (RBS) and HBOS which asked for £12bn and £4bn respectively.

However last week RBS announced a record loss of £24.1bn for 2008, and will now receive an additional £13bn from the taxpayer.

HBOS has since been taken over by Lloyds.

The government now has a stake in both banks, owning 70% of RBS and 43% of Lloyds Banking Group.

Bradford & Bingley also issued a £400m rights issue last year before being nationalised.

But like Barclays, HSBC has not sought any financial help from the government.

No executive bonuses

HSBC admitted that the banking industry had done many things wrong. Inappropriate products were sold inappropriately by many, it added.

There is an important need to underscore the critical necessity of good ethical principles in banking
Stephen Green, HSBC chairman

Mr Green said the bank intended to "play our part in rebuilding public trust in our industry".

He confirmed that no executive directors would receive any cash bonuses for 2008, nor would any performance share awards be made for the year.

However, the bank's annual report revealed that it paid one of its bankers more than £13.7m ($19.5m) last year, while another earned more than £11m.

Unlike many of its rivals, HSBC reveals the amount of money paid to its five highest-earners outside the boardroom.

Mr Green took home £1.26m in pay last year, while chief executive Mike Geoghegan earned £1.67m.

'Ethical principles'

HSBC said 2008 had been a very difficult year for the financial sector, and it expected 2009 to continue to be challenging.

Mr Green admitted that while banks had always had a moral obligation governing their behaviour, it had "not always been honoured in the observance".

"I think there is an important need to underscore the critical necessity of good ethical principles in banking and in the markets," he said.

He added that he thought there would be a reversion to some older principles of banking, in terms of "a simpler sense of providing good customer service, good relationship management, and a sensible approach to liquidity".

He also said it was understandable that the government was putting pressure on banks to increase their lending.

HSBC said its lending in the UK grew by 12% in 2008.

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