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HSBC’s 2008 net income fell 70%, plans share issue


HSBC PLC, Europe’s largest bank by market value, yesterday reported a 70 percent drop in net profit last year and said it would raise US$17.7 billion in new capital through a share issue while cutting 6,100 jobs in the US.

HSBC said it would scale back its consumer lending in the US after being hit hard by the subprime mortgage crisis, shrinking its consumer loan business there but added that its HSBC USA branch banking business would remain.

By turning to investors for new capital instead of asking for government aid, the bank would avoid the strings that go with the bailouts given to other British banks. It also said it would cut its dividend and not pay bonuses to top executives.

The bank reported that net profit last year tumbled to US$5.7 billion from US$19.1 billion a year earlier as the company wrote down the value of assets, particularly in the US.

The company said three senior executives, including CEO Mike Geoghegan, had asked not to receive any bonuses for last year.

That decision comes amid a storm of public outrage about bankers’ bonuses, in particular, the revelation that Fred Goodwin, former CEO at Royal Bank of Scotland (RBS), will receive a £693,000 (US$990,000) annual pension.

RBS has since Goodwin’s departure in November become mostly state-owned amid record losses, and the government has recently said it will seek to prevent Goodwin from receiving the money, which he has said he would try to keep.

HSBC set aside US$24.9 billion in provisions for markdowns such as bad loans and credit risk last year, up sharply from the US$17.2 billion in 2007. Much of the increase was due to writedowns on goodwill — the intangible value of an asset, such as a brand name — in the US.

Disappoint at HSBC’s earnings report sent the stock down 10.6 percent in morning trading yesterday on the London Stock Exchange.

Given a weak US market, HSBC said it would scale back its consumer lending operations there, shutting down its HFC and Beneficial brands, causing a loss of 6,100 jobs.

“Management believes it will take years before property values return to the levels seen prior to the decline and, as such, has concluded that recovery in the subprime mortgage lending business is uncertain and the industry is unlikely to stabilize for a number of years,” HSBC said.

The company said its retail bank branch business in the US would not be affected by this decision and it would continue to issue credit cards.

Amid the drop in profits, the bank’s Tier 1 capital ratio — a key indicator of a bank’s financial strength — fell to 8.3 percent last year from 9.3 percent a year earlier. The bank said the share issue would boost that to 9.8 percent.

“This capital raising will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events,” chairman Stephen Green said in the earnings report.

The company cut its dividend to US$0.64 per share, a 29 percent decrease from 2007.

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