Investor puts pressure on HSBC to let US sub-prime unit go bankrupt
HSBC came under pressure to let Household, its American sub-prime bank, go bankrupt yesterday, in order to avoid an expensive rights issue or government bailout.
The proposal was dismissed by HSBC, although the bank is to consider making a cash call in the coming months that some analysts believe could involve it asking for £13.5billion from shareholders.
Knight Vinke, the activist investor, told The Times last night that HSBC should refuse to pay the bondholders that fund Household's business, which it estimated would save the bank an estimated $35 billion. (£23.6 billion).
Eric Knight, Knight Vinke's chief executive, said: “Why should HSBC's shareholders take all the pain when these [Household] bondholders are unsecured?” To do this, HSBC would have to threaten to allow Household to take Chapter 11 bankruptcy protection...
... HSBC said that the proposal was unrealistic, as it would hamper the ability of the bank - Europe's biggest - to raise money from American bondholders. A source close to the company said: “If HSBC did this they would be counting themselves out of any future big US bond issue. And they would probably have their US banking licence revoked.”...
I say HSBC should go talk to Tim Geithner (Hank Paulson's successor as Treasury Secretary). Get 2nd round TARP to 'invest' into Household International with MASSIVE dilution to HSBC Holdings.
Dilution means HSBC no longer owner and can walk away.
Also, It is easier for the American govtto buy into Household International than HSBC holdings. For HI is American.
Someone forward this to Green please?