Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

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

Companies

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

© 2005-2022 http://www.MarketOracle.co.uk - 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