Business

HSBC hangs up on Ping An break call, lifts payment and profit target

  • HSBC will return to paying quarterly dividends from 2023
  • Aims to attract investors with a higher profitability target
  • Splitting up Asian companies carries huge risks
  • London shares rise 6%

LONDON/SINGAPORE, August 1 (Reuters) – HSBC (HSBA.L) rejected a proposal from major shareholder Ping An Insurance Group Co of China (601318.SS) to split the lender, a move Europe’s biggest bank said would be costly, while posting better-than-expected earnings and promising bigger dividends.

London-headquartered 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 have pleased investors, HSBC has raised its return on tangible equity target, a key performance metric, to at least 12% from next year, from a low of 10% announced earlier. . It also pledged to return to paying quarterly dividends from early 2023.

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Shares of HSBC rose 6% in early London trading on Monday, the highest since late June.

“We have sympathy for Ping An and all of our shareholders because our performance has not been where it should be over the past 10 years,” Chief Executive Noel Quinn, who has led the bank for more than 10 years, told analysts. two years.

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 referring to Ping An by name in its earnings presentation earlier Monday, HSBC said a breakup would mean a potential long-term impact on the company’s credit rating, tax bill and operating costs. bank, and would entail immediate risks in the execution of any spin-off or merger.

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

Some investors in Hong Kong, HSBC’s biggest market, came out in favor of Ping An’s proposal. They were upset after the lender canceled its payment in 2020. Read more

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

Talks with Ping An had focused on purely business issues, the CEO said, in response to a reporter’s question about whether politics influenced the Chinese investor’s call for the bank’s breakup .

HSBC has shared the findings of a review by outside advisers into the validity of its strategy with its board of directors, but will not publish them externally, Quinn told Reuters.

He said HSBC has released detailed information about its international connectivity and revenues for all its shareholders to understand the value of the franchise and its strategies.

Ping An, who has neither confirmed nor publicly commented on the proposed split, owns about 8.3% of HSBC’s capital. A Ping An spokesperson declined to comment on HSBC’s results and strategy.

BEAT PROFIT

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

Dual-listed HSBC followed in their footsteps, posting pretax profit of $9.2 billion for the six months to June 30, up from $10.84 billion a year ago, but beating the estimate $8.15 billion analyst average compiled by the bank.

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

Instead of breaking up, HSBC will focus on accelerating the restructuring of its US and European businesses and leveraging its global network to generate profits, the lender said.

Citi analysts said the new guidance implied higher earnings for HSBC. “The pace this quarter could result in high-single-digit consolidated earnings before tax upgrades,” they said in a report. https://bit.ly/3BwBEXV

HSBC is paying an interim dividend of 9 US cents per share. He also said share buybacks remain unlikely this year.

It reported a charge of $1.1 billion 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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