Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22
State of the Stocks Bear Market - 15th June 22
The Gold Market Is Getting Ready for Another Interest Rate Hike - 15th June 22
The Dow Industrials’ Big 8-Wave Cycle is Incomplete - 15th June 22
7 Things You Need to Know About Finances - 15th June 22
Dow Stocks Bear Market Forecast Trend Trajectory - 13th June 22
Why Putin has KILLED Russia - 12th June 22
Trading the Calm Before the Stock Market Storm – Consider Putting On A Long Strangle - 12th June 22
Shrinkflation! - 12th June 22
6 Useful Tips To Help You Create A Good Marketing Strategy - 12th June 22
Big Inflation Will Spur Gold Price - 11th June 22
Economic "Hurricane": Here's a Take on a Bank CEO's Warning - 11th June 22
Axie Infinity (AXS)Mmade a lot of People Rich… Temporarily, What We Learned - 11th June 22
The CRACK UP BOOM! Implications for Stocks, Housing. and Commodities, Silver Potential - 10th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

HSBC Rights Issue, is Britain's Healthiest Bank Now Also in Trouble?

Companies / Banking Stocks Mar 02, 2009 - 06:39 AM GMT

By: MoneyWeek


Best Financial Markets Analysis ArticleWe're in trouble now. Arguably the healthiest bank in the FTSE 100, HSBC, is now running to its shareholders with its palm outstretched.

The banking giant said this morning that it's looking to raise £12.5bn from shareholders. It also slashed its dividend by nearly a third. Pre-tax profit for 2008 came in at $9.3bn, down 62% on the previous year, reports the BBC.

Now this isn't like the other big banks. HSBC isn't doing an RBS or a Lloyds – it's not about to be bought by the taxpayer. And at least it's still paying a dividend, even if it's a sharply reduced one.

But just because it's the best of a bad bunch, doesn't mean it's worth buying...

HSBC's need to raise money is no surprise

The fact that HSBC is having to raise more money now shouldn't be too much of a surprise.

Quite apart from the trouble besetting the banking sector in general, HSBC was the first of the British banks to show up the strains of sub-prime. In February 2007, way before Northern Rock collapsed, HSBC issued the first profit warning in its 142-year history, as losses at its US sub-prime lending unit exploded.

The good news is that HSBC is able to raise money in the stock market. It's not being bought by the government, like RBS or Lloyds. And it's not pawning itself in desperation to overseas investors, like Barclays.

The new shares – all five billion of them - are being offered to existing shareholders at 254p each on a five for 12 basis (for every 12 shares you own, you'll be offered five at the reduced price). That's a chunky discount on the 491p a piece the shares were trading at on Friday. But it'll be needed if they want to get the issue away.

Steer clear of banks, including HSBC

If I held HSBC, I wouldn't be buying into the rights issue. That's not a specific judgement on HSBC – it remains one of the least ugly plays in a very ugly sector. But I simply wouldn't be keen to increase my exposure to any bank right now – particularly as we're all already exposed to RBS and Lloyds through the sheer bad luck of being British taxpayers. There's just too much uncertainty out there, and that will last for a long time.

The bank might be winding down its US consumer lending operations, but it's got far more than sub-prime to worry about now. One obvious issue is the stream of corporate defaults and rising consumer bad debts still to come. But more importantly, and less predictably, there's the fact that the dead hand of the government is all over the banking sector. Banks that remain privately owned over the next few years will face a minefield of state-subsidised competition and panic-measure, snap regulation.

That's not a recipe for creating or maintaining a profitable business. So why invest any more of your hard-earned money in such a business?

Why we should worry if Sir Fred loses his pension

If you're still not convinced, just take a look at the uproar over Sir Fred Goodwin's pension. People are rightly annoyed because the Government has stupidly allowed him to walk away with a pension worth nearly £700,000 a year. There's no question that he doesn't 'deserve' it. His bank would have gone bust, were it in any other industry, and it was his top-of-the-market ego-tripping deal for ABN Amro that scuppered it.

However, the deal's sealed. Lawyers consulted by the papers all seem to agree that his contract is pretty-much watertight, and there's not really much that can be done about it now. But instead of throwing its hands up and admitting it messed up, the Government can't stop digging. So we had Harriet Harman, deputy Labour leader, telling Andrew Marr on the BBC at the weekend that Sir Fred should not "count on" keeping his full pension, because "it is not going to happen."

Here's the bit you should be worried about. She went on: "it might be enforceable in a court of law, this contract, but it is not enforceable in the court of public opinion and that is where the government steps in."

Let's ignore for a moment, the fact that this is pure gibberish. After all, if the government really cared for the "court of public opinion" then Gordon Brown would have stepped down months ago. The real concern is this: if you start saying that legally-enforceable contracts can be overturned on the whim of the government, then you're setting a dangerous precedent.

Now, I don't believe this will happen. I think Ms Harman was probably just opening her mouth and sticking her foot in it. But it's this kind of short-term point-scoring, blame-shifting and rule-changing that clearly shows just how ill-matched politicians are to running any sort of business.

And now they're entrenched in our banking sector. I'd suggest that if you haven't already sold out, you do so now.

By John Stepek for Money Morning , the free daily investment email from MoneyWeek magazine .

© 2009 Copyright Money Week - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Money Week Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in