HSBC Holdings Plc will consider a special payout after the sale of its Canadian unit as the bank attempts to face down a campaign from its top shareholder to pursue a wider break-up of the business.
(Bloomberg) — HSBC Holdings Plc will consider a special payout after the sale of its Canadian unit as the bank attempts to face down a campaign from its top shareholder to pursue a wider break-up of the business.
Reporting results that beat analyst estimates, HSBC said it may pay a special $0.21 dividend next year after the completion of the unit sale amid an ongoing tussle with Ping An Insurance Group Co of China. The bank announced the all-cash $10 billion sale of HSBC Canada in November as it seeks to convince investors its plan to refocus on Asia is a better bet than Ping An’s call to consider spinning out its business in the region.
“What we signaled today is our first and priority use of some of those buyback proceeds will be a $0.21 special dividend,” Chief Executive Officer Noel Quinn said in an interview with Bloomberg Television. “Thereafter as we close the transaction we’ll make a decision on how much additional distribution we do via buyback and how much we retain for internal use.”
HSBC’s adjusted pretax profit rose 92% to $6.83 billion in the fourth quarter, above the $6.51 billion consensus estimate of analysts compiled by Bloomberg. The lender, like other global financial services firms, has benefited from rising interest rates. Its net interest margin – a key measure of profitability – rose to 1.74% in the quarter, up from 1.19% a year earlier.
In a move that will prove especially popular to its large investor base in Hong Kong, HSBC said it would resume paying quarterly dividends from the first quarter this year. It said it has brought forward its consideration of buybacks to the first quarter of 2023 and will look other potential buybacks, in addition to any existing program. HSBC previously said it would only resume buybacks once its core capital moved back within its target range of 14% to 14.5%.
The lender retained its existing guidance of net interest income of at least $36 billion for 2023. “There are some uncertainties on the horizon but we’re still positive,” Quinn said on Bloomberg Television. “We know where consensus is at the moment and we think consensus is in a reasonable position so we’re not looking to change guidance on NII.”
What Bloomberg Intelligence Says
HSBC’s guidance of a 50% dividend payout (vs. consensus of 44% in 2023 and 47% in 2024), a special dividend ($0.21 a share in 2024 subject to completion of the Canada business sale) and likely share buyback, after it beat 2022’s pretax profit consensus by 20%, are small incremental positives for its investment story. Its net-interest income guidance of at least $36 billion, which it reiterated, looks too conservative to us.
— Tomasz Noetzel, BI banking analyst
The bank’s shares fell 2.4% at 3:25 p.m. in Hong Kong, having risen slightly in early afternoon trading.
Cost pressures are one of the biggest issues facing the bank. Then Chief Financial Officer Ewen Stevenson told a conference in September that rising inflation could force the lender to significantly increase salaries and that “brutal” cuts could be needed to keep a lid on costs.
The lender’s costs rose 2% in the period due to technology spending and performance related pay. Overall for last year the bank’s variable pay pool shrank to $3.36 billion from $3.5 billion in 2021 as it paid less to investment bankers.
Read More: HSBC Bonus Pool Shrinks to Lowest Since 2020 After Deals Slump
HSBC is among banks who have been seeking to increase shareholders returns as rising interest rates propel profits, but its outlook has long been complicated by geopolitical tensions.
ECL Jump
On the credit side, the bank’s results were hampered as expected credit losses almost tripled to $1.4 billion in the quarter, primarily due to corporate exposures in the UK and mainland China commercial real estate.
HSBC is in the midst of an overhaul of its global operations, most recently announcing the sale of its Canadian unit to Royal Bank of Canada, to refocus on Asia. That deal is expected to close later this year and generate a pretax gain of $5.7 billion.
The bank is also looking to develop its operations in some of Asia’s biggest markets. HSBC has put a renewed focus on building up its Indian unit and plans to open an onshore private banking service for the country’s wealthiest citizens this year. Quinn said in a phone interview that the lender continued to assess potential acquisitions in the region.
“We keep looking at potential bolt-ons to enhance particularly our wealth business in Asia,” Quinn said. “In asset management, insurance and in wealth generally, that’s the primary area of focus for us. Nothing imminent, but we keep looking and if we see the right opportunity, we’ve got the capacity to do it.”
Read More: HSBC Is Betting Big on India’s $400 Billion Pile of Wealth
Management was bogged down last year in efforts to head off a campaign by Ping An to force it to consider a spin out and separate listing of its Asian operations. HSBC has said it can create more value by keeping and growing the business.
The results are the first under new chief financial officer Georges Elhedery, who took over from Stevenson at the start of the year.
–With assistance from Manus Cranny.
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