New rights issue batters HSBC stock

09 March 2009

HSBC Holdings Plc plunged by 24 per cent in Hong Kong today - the most in a single day since 1995 - driven to a 13-year low by last-minute trades and concern about its mounting bad debts in its US business, thanks to its exposure to the housing mortgage meltdown.

HSBC, dubbed the "big elephant" in Hong Kong because of its huge market capitalisation and strong share market performance, has shed $37 billion in market value, while its shares have dropped 42 per cent since last Monday, when it outlined plans to raise $17.7 billion in a deeply discounted rights issue.

While the rights issue will enhance the bank's capital ratio by 150 basis points and raise its tier 1 ratio to 9.8 per cent, restoring its capital advantage over most rivals, the spectre of further writedowns in the bank's US and European businesses looms large.

''The market response is quite good so far towards the rights issue plan,'' Peter Wong, executive director of HSBC's Hong Kong unit, told reporters in the city today. ''Short-term volatility in share prices won't impact it.''

Today's plunge was exacerbated by trades in the final seconds of the daily closing auction, a process the city's stock has pledged to improve to reduce volatility and market manipulation. The shares had fallen 15 per cent before the late trades.

HSBC Chairman Stephen Green last week admitted that the 2003 purchase of Illinois-based Household International, which led to billions of dollars of losses as the US housing market collapsed, was a mistake. It added almost 50 million clients, many with poor credit histories.