HSBC falls on takeover speculation after letter

Audrey Snee

HSBC Holdings shares fell 3.96 per cent yesterday after a 'routine' letter to shareholders revived speculation that the bank was poised to make a major acquisition.

However, analysts in London said they did not believe a big deal was in the offing.

In the letter, sent in March, HSBC asked for permission to raise its authorised share capital at its annual meeting this month.

HSBC wants to issue up to 1.9 billion new shares, about 20 per cent of its existing share capital, raising the number of shares in issue to 11.4 billion.

Although it is routine for companies to seek such mandates, it is the amount of new shares HSBC intends to issue, worth GBP17 billion (about HK$189.91 billion), that has set tongues wagging about a possible acquisition.

'It is a clear sign to the market that it is intending to use the share issue as a leeway to an acquisition, it is clearly on the prowl,' said John Kurk, an analyst at Fox Pitt Kelton.

HSBC has long been rumoured to be considering a takeover bid for United States investment bank Merrill Lynch. The two banks last year formed a partnership targeting wealthy clients.

HSBC shares closed HK$4 down at HK$97 in Hong Kong, and were trading 2 per cent lower in afternoon trade in London, on concerns that it might pay too much for the US bank.

Even though shares in Merrill, valued close to GBP40 billion, have fallen about 20 per cent in the past year, analysts in London predicted HSBC would have to pay a premium for the prestigious brand and because it is one of the few investment bank targets left for HSBC.

But opinion is divided on whether HSBC needs to buy a US investment house to boost its presence in the world's biggest market.