HONG KONG: HSBC, the largest bank in Europe, may apply earnings from its newly released rights issue to fund further acquisitions in Asia and other emerging markets.

The lender announced a $17.7 billion rights issue at a deep discount on Monday. Michael Geoghegan, the bank's CEO, said the rights issue is geared toward building capital strength for the group, prepare for growth in emerging markets and for the bank's organic growth.

Geoghegan stressed that the decline in group earnings and the announcement of the rights issue are different matters. "The fund is for the future, not for the past," he told reporters in Hong Kong yesterday.

"We will be looking at the emerging markets," he said, adding that there are a lot of opportunities as a large number of banks are withdrawing their bases. "We can acquire the portfolio or banks, but there is nothing in the shopping list at the current time," he said.

He noted that HSBC doesn't have a time frame for acquisitions, "the time depends on asset availability and price availability."

Sandy Flockhart, chief executive officer for Asia Pacific, added that HSBC sees opportunities in Taiwan, South Korea, India and the mainland.

"We're a big powerhouse in emerging markets," he said. "Our profit generation in the last couple of years has been in emerging markets and that's where our real strength is."

Flockhart pointed out that making acquisitions in Asia is more difficult than in other countries because of greater competition, and noted that the Asian banking system is well-capitalized.

HSBC in September scrapped a $6 billion plan to buy Korea Exchange Bank from Lone Star Funds, after the global credit crisis slashed asset values. The withdrawal was the group's second failure in three years to expand through takeovers in Korea. Flockhart declined to say whether HSBC is still in talks with the bank.

Regarding the mainland market, Flockhart said HSBC plans to add between 10 and 15 branches to its network on the mainland. The bank has no plans to change its investment in mainland financial companies, including a 19.9 percent stake in the Bank of Communications, he said.

Hongkong and Shanghai Banking Corporation, HSBC's Hong Kong arm, had seen a 13.3 percent earnings decline in 2008 to HK$50.3 billion.

Flockhart said Hong Kong can benefit from the mainland's stimulus measures and also by more tourists coming from the mainland.

"Hong Kong is still well-positioned, no oversupply of property and companies are well-capitalized," he said, predicting a recovery in 2010.

(HK Edition 03/04/2009 page16)