Markets

LONDON (March 2) - HSBC PLC, Europe's largest bank by market value, on Monday reported a 70 percent drop in 2008 net profit and said it would raise $17.7 billion in new capital through a share issue while cutting 6,100 jobs in the U.S.

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HSBC said it would scale back its consumer lending in the U.S. after being hit hard by the subprime mortgage crisis there, shrinking its consumer loan business there — although its HSBC USA branch banking business will remain.

By turning to investors for new capital instead of asking for government aid, the bank would avoid the strings that go with the bailouts given to other British banks. It also said it would cut its dividen and not pay bonuses to top executives.

In 2008, net profit tumbled to $5.7 billion from $19.1 billion a year earlier as the company wrote down the value of assets, particularly in the U.S.

The company said three senior executives — including CEO Mike Geoghegan — have asked to not receive any bonuses for 2008.

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That decision comes amid a storm of public outrage about bankers' bonuses — in particular, the revelation that Fred Goodwin, former CEO at Royal Bank of Scotland, will receive a 693,000 pounds ($990,000) annual pension. RBS has since Goodwin's departure in November become mostly state-owned amid record losses, and the government has recently said it will seek to prevent Goodwin from receiving the money, which he has said he would try to keep.

In 2008, the bank set aside $24.9 billion in provisions for markdowns such as bad loans and credit risk, up sharply from the $17.2 billion in 2007. Much of the increase was due to writedowns on goodwill — the intangible value of an asset, such as a brand name — in the U.S.

The market was not encouraged by HSBC's earnings report, sending the shares down 10.6 percent in morning trading Monday on the London Stock Exchange.

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Due to the weakness of the U.S. market, HSBC said it will scale back its consumer lending operations there — shutting down its HFC and Beneficial brands, causing a loss of 6,100 jobs.

"Management believes it will take years before property values return to the levels seen prior to the decline and, as such, has concluded that recovery in the sub-prime mortgage lending business is uncertain and the industry is unlikely to stabilise for a numer of years," HSBC said.

The company said its retail bank branch business in the U.S. will not be affected by this decision and it will continue to issue credit cards.

Amid the drop in profits, HSBC's Tier 1 capital ratio — a key indicator of a bank's financial strength — fell to 8.3 percent in 2008 from 9.3 percent a year earlier. The bank said the share issue would boost that to 9.8 percent.

"This capital raising will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events," said Chairman Stephen Green in the earnings report.

The $17.7 billion will be raised in a rights issue and is meant to shore up the company's capital position without resorting to government handouts.

The company, which unlike rivals Royal Bank of Scotland PLC and Lloyds Banking Group PLC has avoided taking government bailout funds, cut its dividend to $0.64 per share, a 29 percent decrease from 2007.

Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

2009-03-02 06:31:45

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187 comments

Mixnutts321 07:08:32 PM Mar 03 2009

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Billion here couple hundred billion there who cares it's only money.

Bill m 1oo 06:47:44 PM Mar 03 2009

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LAY OFF the CEO,s not the little guys. everyboby will have a job then and pay for the basic,s of living

Bill m 1oo 06:45:28 PM Mar 03 2009

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YES... lay off all the workers, ceos make big momey and like all the others, lay off the little people and keep the huge bonus money. i heard the u.s. now has a battalion of super army men ( NOT LEGAL) ready to flatten any revolutions that might start in our country. they will need a army size if it gets any worse

CURTISBIGJ7 12:27:50 PM Mar 03 2009

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BLACKS LAW DICTIONARY DEFINITION OF EXTORTION:PAYMENT FOR GOODS OR SEVICES NOT RENDERD OR A SEVER ABUSE OF POWER: EXAMPLE YOU GET A SPEEDING TICKET YOU GO TO THE CLERK OF THE COURT AND SAY I WAS SPEEDING WHAT IS THE FINE? $35.00 PLUS COURT COST? YOU SAY I NEVER WENT TO COURT! YOU ARE FOCED TO PAY IT BY THIER LAW! EXTORTION ITS IN YOUR LIFE EVERY DAY SO WHERE ARE THE PEOPLE THAT ARE SUPPOSED TO BE YOUR REPRESENITIVES ?

VandeldenF 10:07:26 AM Mar 03 2009

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Jesus coming REAL again and LARGER than all this mess !

Shelleyxjr22 08:11:30 AM Mar 03 2009

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HSBC's profits plunge? Thats rather hard to believe, since HSBC has amended thousands of their consumers credit card APR rates to as high as 28%. If this isn't consumer extortion, and or predatory lending practices, at the very least. I don't know what is. Perhaps consumers need to start suing banks for these type of lending practices. As far as I know. Extortion is illegal.

PAULFIQUET 08:10:16 AM Mar 03 2009

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YEARS OF UNCHECKED CAPITALISTIC WALL STREET DEALINGS,, GUTTING OF THE US INDUSTRIAL COMPLEX WITHIN OUR COUNTRY AND ITS SPEEDY FLLIGHT TO ASIA OR LATIN AMERICA HAS FINALLY CAUGHT UP AND HAS LEFT OUR COUNTRY HELPLESS AND BANKRULPTED. SO M,UCH FOR REAGAN FREE TRADE AND GET GOVERNMENT OFF MY BACK BULL S..........