HSBC launched a 12.5 billion pound ($17.7 billion) rights issue on Monday to shore up its balance sheet after annual profit more than halved and as bad debts soared in the United States.

Europe's biggest bank will offer 5.1 billion shares at 254 pence each, making it Britain's largest-ever rights issue. The issue price is at a 48 percent discount to Friday's close of 491.25 pence.

Several investors told Reuters last week they would support a rights issue, and wanted management to act quickly to remove uncertainty hanging over its share price.

The rights issue is priced below market expectations, but it is a positive for existing shareholders who can maintain their holding without breaking the bank, said Y.K. Lee, analyst at Core Pacific-Yamaichi in Hong Kong.

The bank also said on Monday that pretax profit last year fell 62 percent to $9.3 billion from $24.2 billion a year earlier after it was hit by a goodwill impairment charge of $10.6 billion in the United States.

Excluding the charge pretax profit fell 18 percent to $19.9 billion which was slightly ahead of the $19 billion expected by analysts.

HSBC's London-listed shares were down 10.1 percent at 441.5 pence by 0810 GMT (3:10 a.m. EST).

The bank also cut its dividend for the full year by 29 percent to 64 cents per share and said it would close its troubled U.S. consumer loans business, HFC.

HSBC's losses in North America last year amounted to $15.5 billion, including the $10.6 billion goodwill impairment charge. That stems from its troubled acquisition of Household, the U.S. consumer lending business bought six years ago for $14 billion.

With the benefit of hindsight, this is an acquisition we wish we had not undertaken, chairman Stephen Green said in a statement.

The bank said it would close the majority of its HFC and Beneficial-branded U.S. branch network, resulting in the loss of 6,100 jobs and that, with the exception of credit cards, the U.S. divisions would write no further consumer finance business.

Group-wide the bank said that losses on bad loans jumped 44 percent versus 2007 to $24.9 billion.


The rights issue is being underwritten by Goldman Sachs, JPM Cazenove and HSBC.

The bank's Hong Kong-listed shares were suspended on Monday. Its London shares closed on Friday at 491.25 pence, valuing the bank at $85 billion, ranking it just ahead of JP Morgan Chase as the biggest bank outside China.

I'm afraid the stock might still fall when it resumes trade (in Hong Kong) tomorrow as the market had underestimated the extent of their bad performance in the U.S. and UK, said Lee.

HSBC has traditionally been one of the best-capitalized banks in the world and has not raised capital while others scrambled for cash as the credit crisis deepened.

Finance director Douglas Flint said the bank may want to finance acquisitions as weaker rivals retreat from international markets, especially those that have had to take state help.

We want to position ourselves both defensively for turbulent times and opportunistically for the options that will appear, Flint told reporters. There's nothing on the go but we believe the opportunities will come to banks that have the ability to take such options.

($1=.7044 Pound)

(Additional reporting by Daisy Ku and Douwe Miedema in LONDON and Tony Munroe and Alison Leung in HONG KONG; writing by Paul Hoskins, Editing by Ken Wills, Ian Geoghegan and Hans Peters)