HSBC gets backing for cash call despite investor anger

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The Independent Online

HSBC's record £12.5bn rights issue received investor approval yesterday, but the bank's board faced a series of attacks from small shareholders over its disastrous acquisition of Household International in 2003, the purchase that many investors believe has caused most of the bank's current difficulties.

The bank's cash call gained 99.4 per cent support, setting up HSBC to create 5 billion new shares which will start trading in London on 8 April.

HSBC had maintained throughout the financial crisis that it was strongly capitalised and did not need new cash, but switched its position early this month in announcing the rights issue.

Stephen Green, the bank's chairman, said that with regulators and investors calling for well-capitalised banks and many of its rivals strengthened, HSBC was raising the funds to maintain its advantage on capital and liquidity.

"In the last 12 months, the world has changed dramatically," Mr Green said. "The rights issue is in the best interests of shareholders."

At a thinly attended meeting in London to approve the rights issue, small shareholders attacked Mr Green and other board members over Household. HSBC has written off the entire value of the US sub-prime lender, which it bought for £8bn, after suffering huge bad debts in the last two years.

John Farmer said HSBC showed arrogance when shareholders questioned the wisdom of the deal. "As a company that one might hypothesise has imported sub-prime into the UK, you are now asking to raise £12bn. If shareholders can't trust the board with £8bn ... how can we trust you with another £12bn?"

Mr Green said that the board had decided to buy Household in good faith based on the conditions at the time. "It is an acquisition that with the benefit of hindsight we wish we hadn't done," he added.

Mr Green said HSBC had made a strong start to the year and that the new capital would allow it to take advantage of opportunities for growth, with rivals weakened.

In response to another shareholder, Mr Green acknowledged the mistakes HSBC had made with Household. "We will think carefully if we do acquisitions about if they fit with our strategy, and that we understand the business we are buying and know how to run it."

Knight Vinke, the bank's activist investor, also chipped in.

"Today, shareholders were asked to vote to increase HSBC's share capital in order to strengthen the balance sheet which has been weakened after two years in which there have been horrendous losses in Household," Knight Vinke said.

HSBC shares closed up 3.3 per cent yesterday at 451.25p, easily clear of the rights price of 254p.