Shares in Europe's biggest bank, HSBC, sagged to a 10-year low on Friday as fears mounted it will cut its dividend and potentially raise more capital if the global economic turmoil worsens.
Analysts at Goldman Sachs downgraded their rating on the shares to "sell" from "neutral" and slashed their price target as they predicted it will make a loss this year.
By 0945 GMT, HSBC's London-listed shares were down 0.8 percent at 543 pence, its lowest level since 1999 and underperforming a 2 percent rise by the European bank sector. Its Hong Kong shares closed down 2.7 percent at HK$64.20.
Jane Coffey, head of equities at Royal London Asset Management, said a deterioration in corporate bond leverage loans this week had increased the prospect HSBC would have to raise capital. RLAM is the 24th largest shareholder in the bank, according to Thomson Reuters data.
"HSBC are now in a position where they don't have a strong capital ratio as everybody else has raised money, and so although I don't think their capital position is very weak, it's certainly not the strongest," Coffey said.
"If they do raise capital then it would make sense to cut the dividend or at least make it all scrip," she added.
HSBC declined to comment. It has outperformed rivals in the past year as, unlike many of its rivals, it has not had to raise capital and, historically, has had strong capital and liquidity. In the past it has said its high cash generation, strong liquidity and funding keeps its capital well topped up.
Goldman cut its target price on the Hong Kong stock to HK$49 from HK$77 and added it to its "conviction sell" list, predicting a $1.5 billion loss in 2009 and no dividend payment.
"The bills continue to add up for HSBC, particularly for its $134 billion household subprime business and $92 billion U.S. consumer/commercial property loan book," Goldman said in a research note. "We question the prudence of HSBC paying dividends in 2009."
Ian Smillie, analyst at RBS, cut his rating on HSBC to "sell" from "hold" due to a global slowdown causing higher bad debts. He predicted cash dividends will be scrapped until after 2011.
The gloomy comments follow forecasts from analysts at Morgan Stanley earlier this week that stoked fears HSBC could raise between $20 billion and $30 billion and halve its dividend, sparking a sharp two-day sell-off.
Bank of America and Citigroup have also been hit hard this week by concern they need to raise more capital.
RLAM's Coffey said raising $30 billion would be "at the top end of what they (HSBC) may have to raise and will give them a very good capital ratio."
Dresdner upgraded its stance on HSBC to "buy" from "hold" on Friday, but it also predicted a cut in dividend. "We think that at current prices a dividend cut is fully discounted," analyst Arturo de Frias said in a note.
He said HSBC may need to top up its capital by $10 billion if impairments on its available-for-sale assets prove definitive, which has not yet happened, but he said the fall in share price had created a buying opportunity.
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