HSBC considers $20bn cash call from investors

Sources close to HSBC, Europe’s biggest bank, have refused to rule out tapping its investors for new capital, amid speculation that it is considering a $20bn (£14bn) rights issue.

HSBC chief executive, Michael Geoghegan, is expected to meet with key institutional investors in the Square Mile this week to gauge support for any cash call ahead of the bank’s full year results next Monday. Meanwhile, later this week, Royal Bank of Scotland (RBS) will confirm the biggest loss in British corporate history when it reports results on Thursday.

Last month HSBC said in a carefully worded statement that it had “not sought capital support from the UK Government and cannot envisage circumstances where such action would be necessary”. The bank stressed that its key capital ratio measurement remained robust, while it reaffirmed its commitment to lend as much as £15bn in mortgages this year.

Knight Vinke, the activist investor which is expected to renew its assault on HSBC’s management this week, said in January that it was “convinced a substantial rights issue is inevitable and the longer HSBC leaves it, the worse the problem will become”.

One leading HSBC shareholder, commenting on the likelihood of a rights issue, said: “They’ll have to raise the cash – it’s just a case of when. We’d be supportive of a move sooner rather than later. Let’s see what nasties are revealed next week.”

Another investor said: “If HSBC’s management aren’t careful events are going to overtake them. If its American subsidiary is subject to the stress testing that’s being talked about a cash call is simply inevitable.”

Further writedowns in HSBC’s ailing American Household subprime lending unit will be revealed next Monday. As much as $10bn in goodwill alone could be wiped off its value in 2009, one analyst said last week. HSBC shares closed down more than 4 per cent on Friday at 477.25p – a near halving of the price since October last year. An HSBC spokesman declined to comment.

Speculation about a HSBC rights issue comes ahead of RBS’s full-year results which will reveal as much as a £28bn loss in 2008. Chief executive Stephen Hester is expected to detail a retreat from Asia to shrink the £2 trillion balance sheet. RBS, which is nearly 70 per cent owned by UK taxpayers, is also expected to cut more jobs from its 170,000-strong global workforce.

On Friday, Lloyds banking group chief, Eric Daniels, will face further scrutiny from shareholders, angry at the purchase of HBOS, which racked up £10bn in losses last year. Sources suggest there are growing tensions between Mr Daniels and his chairman, Sir Victor Blank, with some institutional investors calling for heads to roll over the botched HBOS deal.

By Simon Evans and Margareta Pagano
Sunday, 22 February 2009

Source: The Independent

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