HSBC Up on Share Offering

Today, HSBC Holdings plc (HBC - Analyst Report) 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 - Analyst Report) 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.