LONDON HSBC launched Britain's biggest rights issue, raising 12.85 billion pounds ($18.1 billion) on Monday to help it overcome big losses in the United States and exploit the woes of weaker rivals.
Europe's biggest bank said it would shut most of its U.S. consumer lending business, cutting 6,100 jobs, but that it was ready for acquisitions in its traditional stronghold of Asia where many banks are pulling out to focus on core markets.
HSBC is selling 5.1 billion shares at 254 pence each, a 48 percent discount to Friday's close, in a fully-underwritten 5-for-12 rights issue. Its shares closed down 19 percent at a 10-year closing low at 399 pence.
"It's always difficult for a market that's feeling jittery to absorb 12.5 billion of new stock," said Jane Coffey, head of equities at Royal London Asset Management, which is HSBC's 24th largest shareholder according to Thomson Reuters data.
"I am not surprised the stock is down but they are doing the right thing and we are going to support the issue."
The stock has halved in value since Lehman Brothers collapsed in September but HSBC has outperformed peers due to its traditional balance sheet strength.
Its share price fall ranked it as the world's fourth-biggest bank, just behind JP Morgan Chase, with a market value of just over $70 billion.
Several investors told Reuters last week they would support a rights issue, and Monday a top 10 investor, who asked not to be named, said the cash call would provide the bank with greater flexibility.
U.S. JOB LOSSES
Unlike many global players, HSBC reported a profit for 2008 but still took a hit with a pretax profit of $9.3 billion some 62 percent below the $24.2 billion reported for 2007.
The slide in profit was largely due to a goodwill impairment charge of $10.6 billion in the United States and a 44 percent jump in bad debts to $24.9 billion.
Excluding the goodwill charge, pretax profit fell to $19.9 billion, beating the $19 billion expected by analysts.
The bank also cut its dividend for the full year by 29 percent to 64 cents and said it would close its troubled U.S. consumer loans business, HFC.
The bank had increased its dividend by 10 percent or more in each of the previous 15 years.
HSBC made a $16.5 billion loss in the United States last year, compared to a $1.1 billion loss in 2007, following its troubled acquisition of Household, the U.S. consumer lending business bought six years ago for $14.8 billion.
"With the benefit of hindsight, this is an acquisition we wish we had not undertaken," chairman Stephen Green said in a statement.
Knight Vinke, the activist investor that has urged the bank to quit the United States, said HSBC "has finally accepted that its catastrophic investment in Household International, not long ago described by the chief executive as a 'dream portfolio', is worthless."
HSBC has traditionally been among the best-capitalized banks in the world and had resisted raising capital or turning to governments for help while rivals absorbed billions of dollars in losses and scrambled for cash as the credit crisis deepened.
But finance director Douglas Flint said the bank may want to finance acquisitions as weaker rivals retreat from international markets, especially those that have had to take state help.
"We want to position ourselves both defensively for turbulent times and opportunistically for the options that will appear," Flint told reporters. "There's nothing on the go but we believe the opportunities will come to banks that have the ability to take such options."
HSBC said the rights issue would add 150 basis points to its capital ratios, strengthening the core equity tier 1 ratio to 8.5 percent and the tier 1 ratio to 9.8 percent, restoring its capital advantage over rivals.
Alex Potter, analyst at Collins Stewart, said the improved capital strength was not enough to form an "obvious war chest" for acquisitions but that it meant HSBC still remained a "very conservative bank."
"With stronger capital, greater diversity and better funding -- these are rare qualities for a bank and we remain long-term buyers of the stock but see short-term weakness," Potter said.
Others said HSBC was facing lofty bad debts for some time in the face of a grim global economy, and the bank itself said it was "extremely hard to predict" its 2009 performance..
The rights issue is being underwritten by Goldman Sachs, JPMorgan Cazenove, HSBC and three other co-bookrunners.
HSBC will be left with 12.5 billion pounds of the right issue's proceeds after around 350 million pounds, or 2.75 percent, is paid in fees and other expenses.
HSBC said no performance share awards would be made for 2008 and no executive director would receive a cash bonus, but one of its bankers was paid over 13 million pounds in 2008, its annual report showed.
(Additional reporting by Daisy Ku, Douwe Miedema and Raji Menon in London and Tony Munroe, Parvathy Ullatil and Alison Leung in Hong Kong; Editing by Dan Lalor and Hans Peters)
($1 = 0.7104 pound)