FTSE shares at 6 year low after HSBC announcement

03 March 2009 / by Rebecca Sargent
UK shares crashed five per cent to a six year low yesterday following HSBC Bank's announcement of a £12.5billion cash call.

The FTSE 100 index fell to 3625.83, the lowest level for six years, on the back of the larger than expected rights issue from HSBC.

Shares in HSBC Bank also suffered yesterday as investors reeled at the news of a multi-billion shareholder plea. Both funds have since risen slightly, but the stock market remains volatile.

The announcement from HSBC yesterday mirrors the £12billion cash call made by Royal Bank of Scotland (RBS), which came before the bank succumbed to part nationalisation as the taxpayer was forced to pick up the pieces as it crumbled under the credit crunch.

And, despite the bailout of RBS after its shareholders took up its rights issue, analysts are advising HSBC shareholders to take up their rights.

Investment broker at The Share Centre, Nick Raynor said: "The size of the rights issue is bigger than expected but investors shouldn't be worried. HSBC is in a good position, compared to others in the banking sector, it made £6.5billion profits and extra cash will be used to boost the balance sheet.

"We are advising investors who can afford to take up the rights issue to do so. The City has fully underwritten and supported the rights issue so investors should be confident in joining them."

However, Mr Raynor added that new investors should exercise caution: "We would advise investors looking to buy into HSBC for the first time to wait until the rights issue has passed and then reconsider investing. Those investing for income may find better value shares elsewhere as HSBC has cut its dividend."

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