HSBC rejects Ping An break-up call, promises higher dividend

  • HSBC returns to paying quarterly dividends from 2023
  • Aims to convince investors with a higher profitability target
  • Says Asian business split poses huge risks
  • London shares rise almost 8%

LONDON/SINGAPORE, Aug. 1 (Reuters) – HSBC (HSBA.L) pushed back on a proposal by top shareholder Ping An Insurance Group Co of China (601318.SS) to split the lender, a move according to Europe’s largest bank would be expensive, while posting profits that exceeded expectations and promising bigger dividends.

Monday’s comments from HSBC’s London headquarters represent the most direct defense yet since news of Ping An’s proposal to shut down the lender’s Asian operations 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 steps that pleased investors, HSBC raised its target for return on tangible equity, a key performance measure, to at least 12% from next year, from a previously stated minimum of 10%.

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The bank cited falling costs, a 4% increase in adjusted revenues and a growing net interest margin as the main reasons for the increased optimism, as the central bank’s rate hikes improve loan yields.

It also pledged to return to paying quarterly dividends from early 2023.

Shares of HSBC rose nearly 8% in London to trade at the highest level since late June.

“We sympathize with Ping An and all of our shareholders that our performance over the past decade has not been where it should have been,” CEO Noel Quinn, who has headed the bank for more than two years, told analysts.

Asia is HSBC’s largest 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 in its earnings presentation earlier on Monday, HSBC said a breach would pose a potential long-term damage to the bank’s creditworthiness, tax bill and operating expenses, and present immediate risks in conducting any spin-off. off or merger.

“There would be significant execution risk over a three to five year period when customers, employees and shareholders are all distracted,” Quinn said during the call on the proposed dissolution.

Some investors in Hong Kong, HSBC’s largest market, have spoken out in favor of Ping An’s proposal. They were upset after the lender canceled its 2020 payout. read more

Quinn said HSBC would aim to restore the dividend to pre-COVID-19 levels as soon as possible.

Discussions with Ping An were on purely commercial issues, the CEO said, in response to a reporter’s question about whether politics influenced the Chinese investor’s call to split the bank.

HSBC has shared the findings of a study by outside consultants into the validity of its strategy with the board but will not publish it externally, Quinn told Reuters.

Ping An, who has not confirmed or publicly commented on the demerger proposal, owns approximately 8.3% of HSBC’s equity. A Ping An spokesperson declined to comment on HSBC’s results and strategy.

Reuters reported last month, citing sources, that HSBC plans to accelerate its exit from non-core markets and deploy additional capital in Asia in a bid to push back against the Ping An split proposal. read more

PROFIT REPORT

Last week, European lenders offered some positive surprises on earnings. read more

Dual-listed HSBC followed in their footsteps, posting pre-tax profits of $9.2 billion for the six months to June 30, down from $10.84 billion a year ago, but beating the median estimate of $8.15 billion from analysts compiled by the bank. https://bit.ly/3BwBEXV

“The combination of rising interest rates – and thus improving net interest margins – alongside cost containment and low expectations means that HSBC’s second quarter results are satisfying investors,” said AJ Bell Investment Director Russ Mold.

Quinn, under whose leadership HSBC has plowed billions into Asia to fuel growth, said the improved profitability guidance represented the bank’s best returns in a decade and validated its international strategy.

Rather than break up, HSBC will focus on accelerating the restructuring of its US and European businesses, relying on its global network to boost profits, the lender said.

Quinn said as a result of those steps, the bank’s risk-weighted asset reduction program had reached a cumulative total of $114 billion, and was on track to reach at least $120 billion in savings by the end of this year.

The freed up capital will be used for investments in “strong areas,” Quinn said, primarily in Asia.

Analysts at Citi said the new guidance implied an increase in earnings for HSBC. “This quarter’s beat could result in high-single digit consolidated earnings before tax upgrades,” they said in a report.

HSBC will pay an interim dividend of 9 cents per share. It also said share buybacks this year remain unlikely.

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Reporting by Anshuman Daga and Lawrence White; Editing by Muralikumar Anantharaman, Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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