HSBC in bid to raise £12.5bn
Banking giant HSBC today called on shareholders for a record £12.5bn after profits slid 62 per cent last year.
HSBC wants the extra cash to shore up its finances after unveiling bad debt provisions totalling a mammoth $24.9bn (£17.5bn).
The bank said pre-tax profits had slid to $9.3bn (£6.5bn) in 2008 and announced plans to close its troubled US consumer lending business.
The heavily discounted rights issue surpasses the £12bn fundraising exercise carried out by Royal Bank of Scotland nearly a year ago, before the bank was forced into state support.
HSBC has so far avoided calling on the taxpayer for cash and chairman Stephen Green said he was "determined that HSBC should maintain its signature financial strength".
But the firm also bore the scars of a tumultuous year for the banking sector in the severe blow to its profits and lowered its dividend payouts.
HSBC's decision to run down its US consumer lending operation is an embarrassing blow to the group's strategy after it spent billions on the Household business in 2003.
The bank, which lends to consumers under the HFC and Beneficial brands in the US, will cease taking new loan applications and close branches as soon as possible - with the loss of 6,100 jobs.
HSBC Finance, the bank's US arm, racked up loan and credit risk charges of $16.3bn in the US (£11.4bn) and took a further $10.6bn (£7.4 billion) in goodwill writedowns.
Shares in the bank fell 9 per cent following news of the results, rights issue and heavy writedowns. The slide of the blue-chip heavyweight meant the FTSE 100 Index opened more than 100 points lower at close to a six-year low.
Referring to Household, Mr Green said: "With the benefit of hindsight, this is an acquisition we wish we had not undertaken."
The bank's admission will be seen as a vindication for activist investor Eric Knight of Knight Vinke - a persistent critic of the US venture, which was bought when the country's housing and credit market was booming.
Rising bad debts at the US business led to a shock profits warning in February 2007 - one of the early harbingers of the credit crunch.
The chairman warned the year ahead would be "difficult", with unemployment rising through 2009 into 2010 in both the US and the UK, as well as further falls in house prices.
"We should remember that the US is the driver of the global economy and global growth depends on the US recovery," he said.
The firm has tightened its lending criteria in the UK but almost doubled its gross mortgage lending in 2008 to £17bn as rivals faltered or withdrew from the market.
Its rate-matcher product - which offered to match previous rates for customers faced with higher bills after coming off cheaper fixed mortgages elsewhere - resulted in £5.4bn in new business, the bank said.
These were less risky loans made at lower loan to value ratios - averaging 59 per cent - and HSBC has established a £15bn mortgage fund for the UK in 2009 to build on its position.
But HSBC's chairman also launched a wide-ranging attack on failings in the banking industry, which had contributed to a "major breakdown in trust".
As the row over former RBS chief executive Sir Fred Goodwin's £693,000 pension continues, he said "there have been too many who have profoundly damaged the industry's reputation".
"Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is genuine and widespread anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system," he added.
"Underlying all these events is a question about the culture and ethics of the industry. It is as if, too often, people had given up asking whether something was the right thing to do, and focused only on whether it was legal and complied with the rules."
Mr Green - who vetoed his cash bonus in 2008 - said the there would be no share awards made across the group based on 2008's performance. HSBC's executive directors, including chief executive Michael Geoghegan, will not gain any cash bonuses for last year.
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