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THE RATINGS GAME
HSBC Holdings may need to raise $30 billion
By Steve Goldstein, MarketWatch
Last update: 5:01 a.m. EST Jan. 14, 2009
Comments: 62
LONDON (MarketWatch) -- HSBC Holdings may need to raise $30 billion in equity and slash its dividend in half, analysts from Morgan Stanley said Wednesday in a research note that challenges the perception that the bank is one of the strongest in the world.
HSBC Holdings (HBC:
HBC
HBC, , ) (UK:HSBA: news , chart , profile ) (HK:5: news , chart , profile ) , Europe's largest, is unusual in that it hasn't accepted cash from any government during the credit crunch.
Morgan Stanley has long had a bearish stance on HSBC, with the broker in November estimating a capital shortfall of $25 billion that it could fill by raising $15 billion in capital and cutting its dividend in half.
But now the brokerage says HSBC needs to raise between $20 billion and $30 billion and is still calling for a halving of its dividend.
The note penned by a team led by Anil Agarwal says the group's Asian franchise isn't as well capitalized as thought. By Morgan Stanley's reckoning, HSBC's Hongkong and Shanghai Banking Corp. division has one of the lowest reserves of any Hong Kong bank, and needs an extra $5.8 billion.
Plus, HSBC has already padded its U.K. and U.S. businesses by roughly $11 billion, leaving little cushion at the group level.
Morgan Stanley estimates that further losses in the U.S. will require another $5 billion in equity. And it says it can't rule out HSBC not paying a dividend for two years.
Chart of UK:HSBA
HSBC's profits are also under threat, the broker said, with the bank not having anywhere to hide as it faces its first drop in a global credit cycle.
The "world's local bank" has 57% of its loan book in the U.S. and the U.K., making it highly exposed to the credit cycle.
But Hong Kong and Singapore also are in recession, and Latin America is undergoing a sharp slowdown as well.
Another problem for HSBC is the recent strengthening of the U.S. dollar, as HSBC pays its dividends out in greenbacks.
Morgan Stanley slashed its price target to HK$52 from HK$75 and reiterated an underweight rating.
In Hong Kong trade, HSBC shares lost 4% to HK$70. In mid-morning London trade, HSBC shares dropped close to 8% -- or a decline in market value of roughly $8 billion.
Morgan Stanley isn't alone in criticizing HSBC. The activist investment group Knight Vinke has long pressed for changes at HSBC, though much of it was centered on a perceived over-exposure to developed markets, notably the U.S.
The hedge fund Eton Park has carried a short position for several months, according to U.K. disclosure statements. End of Story
THE RATINGS GAME
HSBC Holdings may need to raise $30 billion
By Steve Goldstein, MarketWatch
Last update: 5:01 a.m. EST Jan. 14, 2009
Comments: 62
LONDON (MarketWatch) -- HSBC Holdings may need to raise $30 billion in equity and slash its dividend in half, analysts from Morgan Stanley said Wednesday in a research note that challenges the perception that the bank is one of the strongest in the world.
HSBC Holdings (HBC:
HBC
HBC, , ) (UK:HSBA: news , chart , profile ) (HK:5: news , chart , profile ) , Europe's largest, is unusual in that it hasn't accepted cash from any government during the credit crunch.
Morgan Stanley has long had a bearish stance on HSBC, with the broker in November estimating a capital shortfall of $25 billion that it could fill by raising $15 billion in capital and cutting its dividend in half.
But now the brokerage says HSBC needs to raise between $20 billion and $30 billion and is still calling for a halving of its dividend.
The note penned by a team led by Anil Agarwal says the group's Asian franchise isn't as well capitalized as thought. By Morgan Stanley's reckoning, HSBC's Hongkong and Shanghai Banking Corp. division has one of the lowest reserves of any Hong Kong bank, and needs an extra $5.8 billion.
Plus, HSBC has already padded its U.K. and U.S. businesses by roughly $11 billion, leaving little cushion at the group level.
Morgan Stanley estimates that further losses in the U.S. will require another $5 billion in equity. And it says it can't rule out HSBC not paying a dividend for two years.
Chart of UK:HSBA
HSBC's profits are also under threat, the broker said, with the bank not having anywhere to hide as it faces its first drop in a global credit cycle.
The "world's local bank" has 57% of its loan book in the U.S. and the U.K., making it highly exposed to the credit cycle.
But Hong Kong and Singapore also are in recession, and Latin America is undergoing a sharp slowdown as well.
Another problem for HSBC is the recent strengthening of the U.S. dollar, as HSBC pays its dividends out in greenbacks.
Morgan Stanley slashed its price target to HK$52 from HK$75 and reiterated an underweight rating.
In Hong Kong trade, HSBC shares lost 4% to HK$70. In mid-morning London trade, HSBC shares dropped close to 8% -- or a decline in market value of roughly $8 billion.
Morgan Stanley isn't alone in criticizing HSBC. The activist investment group Knight Vinke has long pressed for changes at HSBC, though much of it was centered on a perceived over-exposure to developed markets, notably the U.S.
The hedge fund Eton Park has carried a short position for several months, according to U.K. disclosure statements. End of Story
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