HSBC sags on $30 bln capital raising worry

HSBC Holdings is likely to halve its dividend and may need to raise up to $30 billion in a rights issue, according to leading analysts, sending shares in Europe's biggest bank skidding on Wednesday.

Morgan Stanley said the bank's earnings will fall this year and its relative capital position is not as strong as in the past.

"Our detailed study of HSBC's capital and asset quality position reinforces our belief that it will have to halve the dividend and raise major capital in 2009," Morgan Stanley analysts Anil Agarwal and Michael Helsby said in a note.

By 0815 GMT, HSBC's London-listed shares were down 6.3 percent at 600 pence, one of the weakest UK stocks. Its Hong-Kong shares fell 4.1 percent.

HSBC has not had to raise capital during the financial crisis, unlike most big rivals, due to its historically strong capital and liquidity. But it is facing increasing scrutiny over any potential need to raise funds as the economy worsens.

"Historically, HSBC has carried about 120 basis points of surplus capital at the group level – this has now all but gone at a time when we think it better for the buffer to have increased," Agarwal said in the note.

"We believe HSBC is highly likely to cut the dividend in 2009, and in our bear case we now pencil in a 20 billion pounds ($29.2 billion) rights issue."

It cut earnings forecasts for the group and said it did not expect recovery until 2011 at the earliest.