- HSBC will return to paying quarterly dividends from 2023
- Aims to win over investors with a higher return target
- He says splitting up the Asian business carries huge risks
- London shares rose 6%
LONDON/SINGAPORE, Aug 1 (Reuters) – HSBC ( HSBA.L ) rejected a proposal by major shareholder Ping An Insurance Group Co of China ( 601318.SS ) to split the lender, a move Europe’s biggest bank said will cost dearly, while posting earnings that beat expectations and promising bigger dividends.
London-based HSBC’s comments on Monday represented its most direct defense yet 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 offer will be discussed.
And in moves that pleased investors, HSBC raised its target for return on tangible capital, a key performance measure, to at least 12% from next year, up from a minimum of 10% previously noted. It also pledged to return to paying quarterly dividends from early 2023.
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Shares in HSBC rose 6% in early London trading on Monday, the highest level since late June.
“We sympathize with Ping An and all our shareholders that our performance has not been where it should have been over the past 10 years,” Chief Executive Noel Quinn, who has run the bank for more than two years, told analysts.
Asia is HSBC’s biggest profit center, with the region’s share of the lender’s profit rising to 69% in the first half from 64% a year ago.
Without directly mentioning Ping An by name in its earnings presentation earlier on Monday, HSBC said a breakup would mean a potential long-term hit to the bank’s credit rating, tax bills and operating costs and would lead to immediate risks in making any spinoff or merger.
“There will be significant performance risk over a period of three to five years where customers, employees and shareholders will be distracted,” Quinn said on the call about the split proposal.
Some investors in Hong Kong, HSBC’s biggest market, have come out in support of Ping An’s offer. They were upset after the lender canceled their repayment 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 have been about purely commercial matters, the chief executive said in response to a reporter’s question about whether politics had influenced the Chinese investor’s call for the bank to break up.
HSBC has shared the findings of a review by outside advisers on the validity of its strategy with its board, but will not publish them externally, Quinn told Reuters.
He said HSBC has published detailed information on its international connectivity and revenue for all its shareholders to understand the value of the franchise and its strategies.
Ping An, which has not confirmed or publicly commented on the split proposal, owns about 8.3% of HSBC’s capital. A Ping An spokesman declined to comment on HSBC’s results and its strategy.
EARNINGS BEAT
European lenders offered some positive earnings surprises last week. Read more
Dual-listed HSBC followed in their footsteps, reporting pre-tax profit of $9.2 billion for the six months ended June 30, down from $10.84 billion a year ago but beating analysts’ average estimate of $8.15 billion dollar drawn 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 return in a decade and confirmed its international strategy.
Instead of breaking up, HSBC will focus on accelerating the restructuring of its US and European businesses and rely on its global network to generate profits, the lender said.
Analysts at Citi said the new guidance suggested a rise in HSBC’s earnings. “The hit this quarter could result in a high single-digit consolidated profit before tax increase,” they said in a report. https://bit.ly/3BwBEXV
HSBC paid an interim dividend of 9 US cents per share. He also said share buybacks remain unlikely this year.
It took a $1.1 billion charge for expected credit losses as heightened 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
Our standards: The Thomson Reuters Trust Principles.
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