HSBC Up On Share Offering

Today (Monday), HSBC Holdings plc (HBC) stated that almost 97% of its previously announced rights issue was taken up by shareholders, raising $17.7 billion through the issuance of almost 4.9 billion new shares and significantly strengthening capital adequacy ratios. The rights offering pushed up the forma Tier 1 capital ratio by 150 points to 9.8% at December 31, 2008, near the top of HSBC’s 7.5-10.0% target range.

This was necessary following the large $10.6 billion goodwill impairment write-down at its North American business and its decision to exit this business as announced in its 2008 full-year results in early March.

Negatively, the rights issue also caused cause significant dilution to existing shareholder interests, which caused the stock to plummet almost 19% when it was announced on March 2.

The stock has since recovered nicely along with the rest of the stock market, and is up 1 ½% from Friday’s closing price of $32.61 in morning trading.

HBC is one of two UK banks (the other is Barclays PLC, (BCS)) that did not participate in the UK government’s recapitalization scheme. Instead, HBC chose to raise equity from private investors through a 5 for 12 rights issue at a significantly discounted share price of 254 pence per share or about $19.00 per ADS (US$1 = £0.67).

We currently have a Hold recommendation on HBC and note that the current Zacks’ rank is 5, indicating near-term selling pressure on the shares.

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