Joseph Yam Chi-kwong, the chief executive of the Hong Kong Monetary Authority, said yesterday that some prudently managed financial institutions that did not need a government capital injection or a rescue had nevertheless become a 'target' in the market. He did not rule out some speculative selling and warned investors to be careful.

HSBC has been in limbo as investors worry the global lender may need to raise funds to shore up its capital base. Its shares plunged about 26 per cent over eight consecutive trading days starting on January 9.

On January 19, it issued a statement dismissing market talk that it had sought capital support from the British government, saying it 'cannot envisage circumstances where such action would be necessary'.

Ivan Li, an analyst at Kim Eng Securities, said he believed the bank was in no urgent need to raise funds even though it had not explicitly dismissed such possibility. 'The statement reflected the management's confidence on its financial strength.'

But other analysts disagreed and estimates of required capital raising varied from US$16 billion to US$30 billion, on growing concerns over rising loan losses and weaker revenues.

But while many analysts expected HSBC would ultimately tap the market for funds, they were less certain what form the capital raising might take. A placement for institutional investors could be one of the easiest ways to raise capital, they said, but this could alienate existing shareholders since their stake in the bank would be diluted.

A rights issue could be an alternative, since it would be fairer to all shareholders, they added. But since the bank had no single shareholder with more than 5.15 per cent of its stock, it would be a challenge to ensure the fund raising would be successful.

Louis Tse Ming-kwong, a director at VC Brokerage, said HSBC's share price had fallen to a 10-year low, placing the bank at a disadvantage when it came to raising capital.