Jan. 14 (Bloomberg) -- HSBC Holdings Plc, Europe’s largest bank by market value, fell in London trading after Morgan Stanley analysts predicted it may have to raise as much as $30 billion and cut the dividend in half as earnings drop.

London-based HSBC slid 8 percent to 588.75 pence, the lowest since February 1999, valuing the bank at 71.5 billion pounds ($104 billion.) The shares closed down 4.1 percent in Hong Kong.

HSBC’s profit is likely to fall “sharply” this year and won’t recover until 2011 at the earliest, Morgan Stanley analysts including Michael Helsby and Anil Agarwal said in a yesterday in a note. HSBC, Britain’s best-performing bank stock last year and the only one so far to avoid raising new capital, is down 11 percent this year in London trading, more than any other U.K. bank.

“I think every man and his dog knows that HSBC’s capital position has been eroded,” said Simon Maughan, a London-based analyst at MF Global Securities Ltd., who has a “buy” rating on the stock. “HSBC massively outperformed in the last year, and if I was an investment manager in the U.K, I may think that I want to take a bit of profit.”

The worst financial crisis since the Great Depression is hurting banks worldwide. Deutsche Bank AG, Germany’s biggest bank, reported a loss of about 4.8 billion euros as it increased provisions for bad debt. New York-based Citigroup is ceding its Smith Barney brokerage to Morgan Stanley and may also dump the CitiFinancial consumer-lending unit, people familiar with the matter said.

Subprime Mortgages

HSBC was the first bank in Europe to warn of losses on subprime mortgages in the U.S. Banks and brokers worldwide have been forced to raise more than $800 billion since the credit crisis started in 2007.

“Expectations for capital raising activity will create selling pressure on the stock,” said Max Chong, an analyst at Hong Kong-based Quam Ltd. who has an “accumulate” rating on HSBC. “Looking on the good side, we believe share prices usually bounce back gradually” after the sale is completed, he said.

The Morgan Stanley analysts, which have an “underweight” rating on the stock, cut their estimates for HSBC’s 2008 profit by 17 percent to 90 cents a share. The 2009 estimate was cut by 39 percent to 55 cents.

Gareth Hewett, an HSBC spokesman in Hong Kong, declined to comment. HSBC was among the first global banks to acknowledge the troubles in the U.S. mortgage market that sparked the credit crunch, announcing in December 2006 that bad loans were rising as bankruptcies increased. The bank has recorded $33 billion in writedowns and credit losses, according to Bloomberg data. It has raised $4.9 billion, mainly through bond sales.

Capital Ratio

HSBC’s capital adequacy ratio, a measure of its financial strength, was 11.9 percent as of June 30. That compares with 14.9 percent at Standard Chartered Plc, which raised 1.8 billion pounds ($2.6 billion) from a rights offering in December.

“HSBC has one of the weaker capital ratios in Europe and the second weakest in Asia,” Morgan Stanley said. “We believe HSBC is highly likely to cut its dividend in 2009, and in our bear case we currently pencil in a 20 billion-pound rights issue.”

The U.K. bank’s estimated dividend yield for 2008 is 9.1 percent, according to Morgan Stanley. U.S. 10-year Treasuries yield 2.3 percent.

CLSA Asia-Pacific Markets analysts led by Daniel Tabbush forecast in December that HSBC would seek to raise about $14 billion. HSBC earns more than three-quarters of its profit from emerging markets and has mostly avoided the subprime-tainted securities that toppled Lehman Brothers Holdings Inc. and forced Merrill Lynch & Co. to sell itself to Bank of America Corp.

Provisions

HSBC will have to make more provisions in 2009 because 75 percent of its loans are in the U.S. and U.K., CLSA analysts led by Tabbush said.

Chief Executive Officer Michael Geoghegan has criticized the government-sponsored bailouts of lenders including Royal Bank of Scotland Group Plc and HBOS Plc.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

Last Updated: January 14, 2009 13:04 EST