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HSBC announces £12.5 billion rights issue

One of the strongest banking companies in the world, HSBC, has today been forced to go cap in hand to investors for an additional £12.5 billion after announcing a rights issue. The heavily discounted rights issue is vital to enable the other company to increase its Tier 1 capital ratio after taking a severe hit from its US operations. However, unlike Royal Bank of Scotland which had been criticised from day one for a number of the US and other overseas acquisitions, the HSBC acquisition of Household International had been well-received at the time.

The situation today is very different with the company having to write off billions of pounds on its US operation. HSBC is now in the process of winding down the Household International operation which could see a significant jump in costs and write-offs, which has caused uncertainty in the market place. However, on the whole HSBC is in a far stronger position than many of its international competitors who are struggling on more fronts than the former Hong Kong Shanghai Banking Corporation.

While analysts expect short-term fluctuations in the share price it appears as though the rights issue, assuming there are no more serious market surprises, should be successful but nothing is ever guaranteed in the current market environment.

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