HSBC Seeks $18 Billion in Capital and Cuts 6,100 Jobs

By JULIA WERDIGIER
Published: March 2, 2009
LONDON — HSBC Holdings, the biggest bank in Europe, decided on Monday to finally draw a line under its troubled subprime mortgage lender as it asked investors for £12.5 billion, or about $18 billion, of new capital to prepare for further deterioration of the global economy.
HSBC, which has not sought capital from the British government, said it would stop writing consumer loans in the United States and wind down the unit, formerly called Household International, which it renamed HSBC Finance, in the next five years.
The bank will retain its credit card business and commercial retail bank in the United States, but the closure of most of its HSBC Finance branches and the reduction of 6,100 jobs will signify the end of HSBC’s push, started six years ago, to grab a share of the subprime market.
In announcing the share sale for about $18 billion, the bank conceded that the acquisition of the business, whose increasing losses ate into group earnings last year, had been a mistake. But it also said it would have to continue to inject capital into the business until its closing as impairment charges were likely to increase.
“With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” the HSBC chairman, Stephen Green, said at a news conference in London.
HSBC’s bad loan charges amounted to about $53 billion over the last three years, most of that from the United States unit. The bank wrote off $10 billion for the entire value of the American business, but the unit still has a mortgage portfolio of $62 billion.
Mr. Green added that HSBC remained committed to the United States, but now must rethink its strategy there.
Any new strategy would be closely linked to HSBC’s goal of further shifting earnings toward Asia, Latin America and other emerging markets. Mr. Green said any new lending business in the United States would be linked to operations elsewhere, like offering products to Hispanics in the United States by using existing networks in Latin America.
“The sensible thing for HSBC would have been not to buy Household in the first place,” said Colin Morton, an investment director at Rensburg Fund Management in Leeds, England. “But they are right to get rid of it, and now they should be in a pretty good position to get some high-quality business.”
HSBC said it planned to use part of the capital increase for acquisitions, but ruled out any large takeovers. The bank plans to raise the money it needs in a rights issue by offering new shares to existing investors. It has been fully underwritten by a group of banks led by Goldman Sachs and JPMorgan Cazenove.

http://www.nytimes.com/2009/03/03/business/worldbusiness/03hsbc.html?ref=economy

When? On Monday March, 2 2009
Where? In London
Who? HSBC Holdings
What? Asked investors for £12.5 billion, or about $18 billion, of new capital to prepare for further deterioration.
Why? To prepare for the economic crisis