- HSBC will return to paying quarterly dividends from 2023
- It aims to attract investors with a higher return target
- He says the spin-off of the Asian business has big risks
- London shares up 6%
LONDON/SINGAPORE, Aug 1 (Reuters) – HSBC ( HSBA.L ) rejected a proposal by top shareholder Ping An Insurance Group Co of China ( 601318.SS ) to split the lender, a move that the biggest bank in Europe said it would be expensive, while posting earnings that beat expectations and promising bigger dividends.
London-based HSBC’s comments on Monday represent its most direct defense to date since news of Ping An’s proposal to spin off the lender’s Asian operations broke in April. It comes ahead of HSBC’s meeting with shareholders in Hong Kong on Tuesday where the Chinese insurer’s proposal will be discussed.
And in moves that pleased investors, HSBC raised its target for return on tangible equity, a key performance metric, to at least 12% from next year, up from a target of at least 10% before. It also pledged to return to paying quarterly dividends from early 2023.
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HSBC shares rose 6% in early London trading on Monday, the highest since late June.
“We have sympathy for Ping An and all our shareholders because our performance has not been where it should have been over the last 10 years,” Chief Executive Noel Quinn, who has led the bank for more than two years, told analysts years.
Asia is HSBC’s biggest profit center, with the region’s share of the lender’s profits rising to 69% in the first half, from 64% a year ago.
Without directly referring to Ping An by name in its earnings presentation on Monday, HSBC said a breakup would have a potential long-term impact on the bank’s credit rating, tax bill and operating costs, and would carry immediate risks in the execution of any spin-off or merger.
“There would be significant execution risk over a period of three to five years when customers, employees and shareholders are distracted,” Quinn said on the call, regarding the proposed breakup.
Some investors in Hong Kong, HSBC’s biggest market, have backed Ping An’s proposal. They got upset after the lender canceled their payment in 2020. Read more
Quinn said HSBC would aim to restore its dividend to pre-Covid-19 levels as soon as possible.
Discussions with Ping An had been around purely commercial issues, the CEO said, in response to a reporter’s question about whether politics was influencing the Chinese investor’s call for the bank to be broken up.
HSBC has shared with its board the findings of a review by external advisers on the validity of its strategy, but will not publish them externally, Quinn told Reuters.
He said HSBC had published detailed information on its international connectivity and revenue so that all its shareholders understood the value of the franchise and its strategies.
Ping An, which has not confirmed or publicly commented on the proposed break-up, owns about 8.3% of HSBC’s capital. A Ping An spokesman declined to comment on HSBC’s results and strategy.
BLESSED EARNINGS
Last week, European lenders offered some positive earnings surprises. Read more
Dual-listed HSBC followed suit, posting a pre-tax profit of $9.2 billion for the six months ended June 30, down from $10.84 billion a year ago but beating average analyst estimate of $8.15 billion compiled by the bank.
Quinn, under whose leadership HSBC has invested billions in Asia to drive growth, said the improved profitability guidance represented the bank’s best returns in a decade and validated its international strategy.
Instead of the breakup, HSBC will focus on accelerating the restructuring of its businesses in the United States and Europe, and rely on its global network to generate profits, the lender said.
Analysts at Citi said the new guidance implied higher earnings for HSBC. “The pace this quarter could result in a high-single digit consolidated profit before tax updates,” they said in a report. https://bit.ly/3BwBEXV
HSBC pays an interim dividend of 9 cents per share. He also said share buybacks remain unlikely this year.
It reported a $1.1 billion charge for expected credit losses as increased economic uncertainty and rising inflation put more of its borrowers in trouble.
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Reporting by Anshuman Daga and Lawrence White; Editing by Muralikumar Anantharaman
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