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Bank Cuts Back Lending

Mike

Well-known member
HSBC to scale back US lending
By Peter Thal Larsen and Kate Burgess

Published: March 1 2009 19:03

HSBC on Monday announced plans to scale back its US consumer finance operations as the bank launched a £12.5bn ($17.7bn) rights issue designed to re-establish its position as one of the world’s best-capitalised banks.

The bank is further shrinking HSBC Finance Corporation, its US-based credit card and mortgage lender, which has suffered mounting losses as a result of the subprime mortgage meltdown and subsequent US recession.

The London-based company is also writing off much of the goodwill on its balance sheet associated with the business, bought for $14bn in 2003. “With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” it said.

This charge does not affect its capital position but the writedown is embarrassing because it underscores the value the business has destroyed since the subprime crisis started in 2006.

The US subprime lending operations would be closed to new business, although people familiar with the issue said the unit would continue to issue credit cards to borrowers with poor or patchy credit histories.

HSBC has already stopped writing new subprime mortgages in the US and has closed its car loans business. It has also transferred loan portfolios to other parts of the bank in order to help shrink the balance sheet of its US consumer finance arm.

However, executives have argued that subprime lending would again become profitable when the US economy recovered.

The terms of the capital-raising were finalised on Sunday but some shareholders were briefed on Friday about the rights issue, designed to raise $16bn-$18bn through a deeply discounted issue of new shares.

HSBC also cut the fourth-quarter dividend from 39 cents in 2007 to 10 cents, and outlined dividends for 2008 that will put the shares on a yield of about 5.5 per cent.

The fully underwritten issue of five new shares for every 12 held is priced at 254p a share to raise £12.5bn net of expenses. HSBC shares closed in London on Friday at 491¼p. The shares were suspended in Hong Kong on Monday.

The bank said the move would add 150 basis points to HSBC’s capital ratios, strengthening the core equity tier 1 ratio to 8.5 per cent and the tier 1 ratio to 9.8 per cent, both on a pro forma basis as at 31 December 2008.

The offering – underwritten by a consortium of global banks led by Goldman Sachs and JPMorgan Cazenove – is expected to set a record for the biggest rights issue to be funded by private investors.

Pre-tax profit for 2008, excluding goodwill impairment, fell 18 per cent to $19.9bn. On a reported basis, pre-tax profit was $9.3bn, down 62 per cent.

HSBC executives are likely to bill the rights issue as a positive move to give the bank a renewed competitive advantage over rivals after the government-backed recapitalisations of lenders such as Royal Bank of Scotland and Citigroup .

They will also suggest that the extra capital gives the bank the firepower to pursue potential acquisitions amid the fallout from the financial crisis. HSBC is seen as a leading candidate to buy the Asian assets of RBS, which were formally put up for sale last week.

Copyright The Financial Times Limited 2009
 

hypocritexposer

Well-known member
I didn't see it in the article, but they are also laying off 6000. They'll probably move those jobs back to London, when they take over the assets of RBS.


They will also suggest that the extra capital gives the bank the firepower to pursue potential acquisitions amid the fallout from the financial crisis

Were they not eligible for TARP funds, because they were foreign?

HSBC executives are likely to bill the rights issue as a positive move to give the bank a renewed competitive advantage over rivals after the government-backed recapitalisations of lenders such as Royal Bank of Scotland and Citigroup .
 
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