HSBC hits 7-year low on $30 billion cashcall

By Steve Slater

LONDON (Reuters) - HSBC Holdings is likely to halve its dividend and may need to raise up to $30 billion (21 billion pounds) in a rights issue, according to leading analysts, sending shares in Europe's biggest bank to a seven-year low.

Morgan Stanley slashed its earnings forecasts for HSBC for this year and next, and said its relative capital position is not as strong as in the past.

"Our detailed study of HSBC's capital and asset quality position reinforces our belief that it will have to halve the dividend and raise major capital in 2009," Morgan Stanley analysts Anil Agarwal and Michael Helsby said in a note.

By 10:35 a.m. British time, HSBC's London-listed shares were down 8.4 percent at 586 pence, after hitting 581.5p, their lowest level since September 2001. Its Hong Kong shares closed down 4.1 percent at HK$70.

The DJ Stoxx Europe bank sector was down 5 percent as the capital worries, a profit warning from Deutsche Bank and big job cuts highlighted the problems facing the industry.

HSBC has easily outperformed rivals in the past year as unlike most big banks it has not had to raise capital, due to its historically strong capital and liquidity. But it is facing increasing scrutiny over any potential need to raise funds as the economy worsens.

"Historically, HSBC has carried about 120 basis points of surplus capital at the group level - this has now all but gone at a time when we think it better for the buffer to have increased," Agarwal said in the note.

"We believe HSBC is highly likely to cut the dividend in 2009, and in our bear case we now pencil in a 20 billion pounds rights issue."