LONDON (AFP) – Asian and European banking titan HSBC revealed on Monday that it needs nearly 18 billion dollars of new capital to withstand the financial crisis and announced 6,100 US job cuts after a profits collapse.
The bank reported a 70-percent plunge in annual net profits last year and said it hoped to raise 12.5 billion pounds (17.8 billion dollars, 14.2 billion euros) in a record British rights issue.
HSBC, based in London, had been regarded as one of the more robust global banks as crisis devastated many top lenders around the world, and has refused British government financial assistance in contrast to some of its rivals.
“The world today faces exceptionally challenging economic circumstances,” HSBC chief executive Michael Geoghegan said in the earnings statement.
“2008 was a very difficult year for the financial sector, and 2009 will be no less so, as the global downturn intensifies.”
The bank also said that its bad debts surged to almost 25 billion dollars (20 billion euros) last year, mainly as a result of the collapse of the US subprime housing market. HSBC added and that it would shut most of its HFC and Beneficial branches in the United States.
Global markets have been in the doldrums for more than a year on worries about access to credit, stemming from the dire state of the US housing market and unwise lending.
HSBC was one of the first banks to warn of the problems among products linked to the subprime or high-risk US mortgage sector. Last September, it scrapped a six billion dollar deal to buy a major South Korean bank after the financial crisis cut asset values worldwide.
On Monday, HSBC said net profits tumbled to 5.728 billion dollars in 2008 compared to 19.133 billion dollars in 2007 as the global financial crisis took its toll.
HSBC added that it was slashing its annual dividend by 29 percent to 64 US cents per share.
The group’s share price plunged 12.2 percent to 431.25 pence in London morning trade, mainly on news that the bank had to go cap-in-hand to raise fresh capital from shareholders.
“After talk of the need for raising cash was dismissed as recently as December last year this is a rather large slice of humble pie, and investors will wonder why such a supposedly well-capitalised bank is slashing the dividend and choosing to raise more cash of record-breaking proportions,” said Martin Slaney, head of derivatives at GFT in London.
“If nothing else this serves to underline just how severe the global economic contraction is.”
HSBC said it would offer investors five new shares at a heavily-discounted 254 pence each for every 12 they already owned.
“In this difficult environment, we missed our profitability targets,” HSBC chairman Stephen Green said on Monday.
“The coming 12 months will be difficult. We expect parts of Asia, the Middle East and Latin America to continue to outperform Western economies, but to be constrained by the global downturn.”
HSBC’s difficult past year was largely a result of losses totalling 15.5 billion dollars at the group’s American personal finance unit.
“The significant deterioration in US employment and 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,” it said.
“It is now clear that models of direct personal lending that depend on wholesale markets for funding are no longer viable.
“In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the HFC and Beneficial brands in the US and close the majority of the network,” added HSBC.