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By Steve Slater
LONDON, March 24 (Reuters) - HSBC is to ask itsshareholders for permission to sell bonds that would convertinto shares and bolster its capital if it hits trouble, givingit the option to join a growing group of banks issuing thesecurities.
More banks are selling the contingent capital securities(CCS), dubbed "CoCos", which convert into shares in certaincircumstances, such as if the capital level falls below acertain level.
Banks issuing them have included Barclays andSantander, and bankers estimate European lenders couldissue up to 240 billion euros ($331 billion) of them over thenext five years.
The aim is to create an extra layer of protection to preventa repeat of the 2007-2009 financial crisis when taxpayers borethe brunt of bank bailouts.
HSBC, Europe's biggest bank by market capitalisation, saidit would ask for approval at its annual shareholder meeting onMay 23 to be able to sell the hybrid bonds.
"Issuing CCSs will give HSBC greater flexibility to manageits capital in the most efficient and economical way ... thisshould improve the returns available to existing shareholderswhilst maintaining HSBC's capital strength," the bank said.
It said it expects the bonds to be a cheaper than issuingordinary shares and would not dilute shareholders unless theywere converted.
The bonds have commonly paid interest of 6-9 percent, butcarry a risk that investors could end up owning shares they maynot want.
HSBC could raise $15-20 billion from hybrid securities inthe coming years, its head of capital planning said in November.
More European banks are issuing CoCos as they benefit fromnew regulatory capital treatment in the European Union.
Italy's largest bank by assets, UniCredit, startedadvertising a new hybrid dollar-denominated bond at aninvestors' roadshow in Europe and Asia on Monday.
EU banks are expected to hold Tier 1 capital of at least 6percent of their risk weighted assets, and can count 1.5percentage points of CoCos towards that goal.
HSBC said it had been granted a waiver by the Hong KongStock Exchange from its strict share issuance rules, which wouldallow it to sell CoCos.
($1 = 0.7256 euros) (Editing by Pravin Char)
