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HSBC to raise $17.7bn, cut jobs as profits fall

"What is perhaps most worrying is the fact that HSBC was seen as better placed than most of its peers and essentially any hope that confidence was returning to equities has been quashed once again," said Matt Buckland, a dealer at CMC Markets.

LONDON( AP)- Europe’s largest bank by market value, on Monday reported a 70 percent drop in 2008 net profit and said it would raise $17.7 billion in new capital through a share issue, while cutting 6,100 jobs as it shutters consumer loan businesses in the U.S.

HSBC said it would scale back lending in the U.S. after being stung by the collapse in subprime mortgage-backed securities — although its HSBC Bank USA branch retail banking business will remain.

It also said it would cut its dividend and not pay bonuses to top executives.

In 2008, net profit tumbled to $5.7 billion from $19.1 billion a year earlier as the company wrote down the value of assets, particularly in the U.S.

The markets were spooked by HSBC’s report, and shares closed down 18.8 percent at 399 pence ($5.60) Monday on the London Stock Exchange.

Analysts said the size of the share issue and writedowns scared off investors.

The company said senior executives — including CEO Mike Geoghegan — will not receive any bonuses for 2008.

In 2008, HSBC set aside $24.9 billion in provisions for markdowns such as bad loans and credit risk, up sharply from the $17.2 billion in 2007.

On top of this, HSBC wrote off all the goodwill — the intangible value of an asset, such as a brand name — on its U.S. personal finance operations, to the tune of $10.6 billion. It cited a "significant deterioration in U.S. employment and economic outlook in the fourth quarter of 2008."

Due to the weakness of the U.S. market, HSBC said it will scale back its consumer lending operations there — shutting down its HFC and Beneficial brands, causing a loss of 6,100 jobs.

HSBC also confirmed that it lost about $1 billion in the alleged investment fraud by Wall Street financier Bernard Madoff.

The $17.7 billion will be raised in a rights issue and is meant to shore up the company’s capital position without resorting to government handouts.

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