(Writes through with details, background)
By Steve Slater
LONDON, March 24 HSBC is to ask its
shareholders for permission to sell bonds that would convert
into shares and bolster its capital if it hits trouble, giving
it the option to join a growing group of banks issuing the
More banks are selling the contingent capital securities
(CCS), dubbed "CoCos", which convert into shares in certain
circumstances, such as if the capital level falls below a
Banks issuing them have included Barclays and
Santander, and bankers estimate European lenders could
issue up to 240 billion euros ($331 billion) of them over the
next five years.
The aim is to create an extra layer of protection to prevent
a repeat of the 2007-2009 financial crisis when taxpayers bore
the brunt of bank bailouts.
HSBC, Europe's biggest bank by market capitalisation, said
it would ask for approval at its annual shareholder meeting on
May 23 to be able to sell the hybrid bonds.
"Issuing CCSs will give HSBC greater flexibility to manage
its capital in the most efficient and economical way ... this
should improve the returns available to existing shareholders
whilst maintaining HSBC's capital strength," the bank said.
It said it expects the bonds to be a cheaper than issuing
ordinary shares and would not dilute shareholders unless they
The bonds have commonly paid interest of 6-9 percent, but
carry a risk that investors could end up owning shares they may
HSBC could raise $15-20 billion from hybrid securities in
the coming years, its head of capital planning said in November.
More European banks are issuing CoCos as they benefit from
new regulatory capital treatment in the European Union.
Italy's largest bank by assets, UniCredit, started
advertising a new hybrid dollar-denominated bond at an
investors' roadshow in Europe and Asia on Monday.
EU banks are expected to hold Tier 1 capital of at least 6
percent of their risk weighted assets, and can count 1.5
percentage points of CoCos towards that goal.
HSBC said it had been granted a waiver by the Hong Kong
Stock Exchange from its strict share issuance rules, which would
allow it to sell CoCos.
($1 = 0.7256 euros)
(Editing by Pravin Char)