HSBC shares plunged Tuesday after the banking giant asked shareholders for a 17.8 billion US dollar cash boost, but Hong Kong's powerful tycoons insisted the firm remained a good long-term bet. The bank's share price slumped 18.8 percent $5.93 US in Tuesday trading in Hong Kong, after falling more than 18 percent in London overnight. The collapse came after the bank on Monday reported a 70 percent tumble in annual net profit last year, mainly due to the dire performance of its US unit. It also asked shareholders to back a huge rights issue, worth $17.8 billion, in an effort to shore up its balance sheet. Despite its worse-than-expected results, many of Hong Kong's richest investors believed the rights issue, priced at $4, was a great bargain. Allan Zeman, the developer behind Hong Kong's most famous nightlife district, said he had been a customer and investor in the bank for more than three decades and he had full confidence that it would weather the crisis. “HSBC has not escaped the financial turmoil. But it is less affected than most of the other banks,” he said. But Zeman did not expect its share price to return quickly to the 120 Hong Kong dollar-level reached in September last year. “The world was awash with cash (before the crisis). Every stock was overpriced.” David Tung, Hong Kong's oldest stockbroker, said he would subscribe to the offer and would also advise his clients to do the same. “I have 100 percent confidence in it. To me, it is the best bank in the world,” he said. Tung said the bank had a strong capital base and a decisive management team which took quick actions to scale back its US operations when it detected problems with subprime mortgages in 2007. However, small investors were disgruntled that their stake in the bank would be diluted after the offering. Some analysts also warned that caution should be exercised. Ricky Tam, chairman of the Hong Kong Institute of Surveyors, told the Washington Post: “Hong Kong investors have been long-time supporters of HSBC but it's time to make a rational decision.” HSBC's chief executive Michael Geoghegan said the bank was at a disadvantage by not accepting bailout money, but had always been run on the principle that it would not receive government help if it got into trouble and had as a result retained a large reserve. “The capital we are raising today is for our future growth in our business either by organic growth or by acquisitions,” he said. “We do not require the capital in 2009 for our internal use.”
