HSBC launched a 12.5 billion pound (17.7 billion dollars) 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 dollars from 24.2 billion dollars a year earlier after it was hit by a goodwill impairment charge of 10.6 billion dollars in the United States.

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

HSBC's London-listed shares were down 18.8 percent at 399 pence by the close.

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 US consumer loans business, HFC.

"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 US branch network, resulting in the loss of 6,100 jobs and that, with the exception of credit cards, the US 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 dollars.

Acquisitions?

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 dollars, 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 US 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."