HSBC results seen as test of global downturn

HSBC was one of the first banks to warn about the subprime crisis and one of the few not to beg for government hand-outs, but any fund-raising move would provide a telling sign of the ferocity of the global slowdown.

A string of analyst and newspaper reports in recent months have said the bank needs extra capital. In the most recent, the Financial Times cited unnamed sources that said the London-based bank would announce a 17-billion-US-dollar share offer when it unveils its annual figures.

The report also said the bank would cut its usually-strong dividend payment, which has kept the stock as a solid bet for both retail and institutional investors. An HSBC spokesman Saturday declined to comment on the report.

The bank has been able to avoid governments hand-outs, unlike many major US and British financial institutions, because of its deep capital reserves and strong Asia and the Middle East operations.

"Monday's results will give us a very good indicator of the performance of the economies in the Asian region," Billy Mak, associate professor of finance, at Hong Kong Baptist University, told AFP. He said the bank could no longer rely on its portfolio in the Asian region to offset heavy losses in its western operations, as the crisis had spread to Asia in the second half of last year, fuelling bad debt.

The fund-raising speculation has had a devastating effect on the firm's share price. In Hong Kong it hit a 10-year low on February 24 after falling close to 30 percent in the last three months, making it one of the worst performing stocks in the Hang Seng Index.

HSBC has focused on expanding into emerging markets in recent years, including Vietnam and India. The strategy was dealt a high-profile blow last summer when it was forced to drop out of a bid to buy a majority stake in Korea Exchange Bank as the credit crisis cut asset values worldwide.

HSBC's results will also provide an insight into the state of the beleaguered British banking system. "As it is one of the very few banking giants in the UK which has managed to survive without a government bailout, its results will also provide a glimpse into the extent to which the British financial system has been affected by the crisis," Mak said.

Last year, HSBC's net profit jumped more than 20 percent to a record 19.13 billion dollars, despite a thumping 17-billion-dollar hit on its exposure to the collapsing US housing market, in particular to so-called subprime loans made to borrowers who were less than fully credit-worthy.

Since then, it has announced job cuts across its global operations and a 1.0-billion-dollar exposure to suspected fraud by US financier Bernard Madoff.

And even if Monday's results are better-than-expected -- analysts surveyed by the Wall Street Journal expected a drop in profit of around 11 percent, although some have predicted closer to 40 -- the share price is unlikely to rebound.

"We think that the bottom has not yet been tested," Rock Lam, research analyst for the banking sector at Phillip Securities, told AFP. "There are lots of uncertainties in the macro-economic environment in Asia, and the effectiveness of many of the government relief measures in the US and Europe remains uncertain."

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