HSBC may have to raise as much as $30 billion in capital and halve its dividend as earnings are likely to deteriorate more than expected, Morgan Stanley analysts said on Tuesday. HSBC earnings are likely to fall more “sharply” this year with no recovery until 2011 at the earliest, the analysts, including Anil Agarwal and Michael Helsby, wrote in a note. Analysts at Household – HSBC Watch wrote basically the same thing earlier, after carefully looking at a cross section of HSBC. Morgan Stanley analysts added that their 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.”
There are a few options open to HSBC that may not be apparent. HSBC could zero out HSBC Finance all together, now that auto lending is finished and HFC and Beneficial are making very few loans. HSBC could send the credit card business to Canada for oversight while daily operations remain in the United States. The move would be a matter of changing holding companies responsible for the divisions.
As soon as HSBC cuts the dividend there will a demand for answers. After many quarters of losses in the United States it will be hard to defend an intelligent position relative to U.S. operations that once belonged to Household International. HSBC could turn to other countries for capital, but global economics might make that impossible. Selling HSBC Finance might also be impossible at this time.
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