HSBC, which was so keen to distance itself from its rivals who took the UK government's bailout cash, is slipping back on fears it may have to raise capital after all.
Its shares are down 23.5p to 700.5p on talk from Asian analysts that it may need to raise up $15bn. Yesterday it admitted to losses of around $1bn due to the alleged fraud by New York financier Bernard Madoff, although this is small in the context of its overall business. And Alex Potter at Collins Stewart said this morning he believed a rights issue was unlikely. He said:
"An Asian broker [is] speculating that HSBC requires a capital raising, of as much as $15bn. Whilst this cannot be discounted entirely (it cannot be discounted for any big bank in the world, in our view), we feel HSBC will not have a rights issue.
"We estimate HSBC's core equity Tier 1 ratio to be 8.3% by end-2008. This compares very favourably with 7.0% for RBS, 7.3% for Barclays and 6.6% for Lloyds-HBoS. However, it is below the Hong Kong bank average (of 10%), Singapore banks (at 10.5%) though about the same as Korean banks (c.7%).
"HSBC is very cashflow generative. Attributable profits of $16bn will be generated this year, we estimate, of which around $10bn is the dividend payment. HSBC sees high levels of scrip uptake of the dividend, however, meaning that the bank tends to have an effective annual share issue worth up to $5bn in any case.
"HSBC is the closest to a cash proxy among the UKb anks and the highest quality balance sheet, in our view. Asian markets are undoubtedly slowing quickly but GDP expectations continue to outstrip those of the US and Europe. Trading at 1.5 times tangible book value, HSBC is not explicitly cheap but remains a relatively safe place to be, in our view."
Elswhere online gambling group PartyGaming has jumped 9.5p to 148.25p on hopes the company could reach a settlement with US regulators over the long running dispute about the legality of its operations in the country.
This follows reports that one of its founder shareholders, Anurag Dikshit, has offered to pay US authorities $300m and plead guilty to illegal web betting, which could lead to settlements with the companies themselves.
PartyGaming noted the report, adding that any developments in Dikshit's case were independent of its own discussions. But it said its negotiations with the Department of Justice were at an advanced stage, and any payment would be less than the $300m that Dikshit has reportedly offered. Nor would there be a criminal plea. Ivor Jones at Evolution Securities said:
"A potential settlement between the US Department of Justice and one of PartyGaming's founders highlights that a setttlement for the company is also close. PartyGaming has announced that it believes it is in the final stages of negotiation with the DoJ (good), that it will involve any amount smaller than the US$300m reported to be proposed for the founder (better) and that it should not require admission to a criminal charge by a director (best). The resolution of the online gaming sector's legal position in the US widens the potential investor pool and should be the catalyst for industry consolidation. All this should drive Party's share price upwards. It is also positive for the rest of the industry and we reiterate our buy recommendation on 888.
"The 'jackpot' deal would be to merge PartyGaming (poker) and 888 (casino) which could result in very significant cost and revenue synergies and generate 30%-50% earnings upside. Ladbrokes has also been linked with 888."
888 is currently 6.5p better at 76.25p.
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