HSBC puts on Ping An call, raises payout and profit target - prologiseurope

HSBC puts on Ping An call, raises payout and profit target

  • HSBC will return to paying quarterly dividends from 2023
  • Aims to win investors with a higher return target
  • Says the division of Asian business involves a lot of risk
  • London shares up 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 would be costly. , but posts better-than-expected earnings and promises generous dividends.

London-headquartered HSBC’s comments on Monday are its most direct defense yet since news broke of Ping An’s proposal to spin off 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 a move that pleased investors, HSBC raised its target for return on tangible equity, a key performance measure, to at least 12% from next year versus a previously flagged low of 10%. It also pledged to return to paying quarterly dividends from the start of 2023.

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

“We sympathize with Ping An and all our shareholders that our performance has not been where it needed to be over the last 10 years,” CEO Noel Quinn, who has led 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 profits rising to 69% in the first half of the year from 64% a year ago.

Without directly referring to Ping An by name in its earnings presentation earlier on Monday, HSBC said a breakup would mean a potential long-term impact on the bank’s credit rating, tax bills and operating costs, and present immediate risks to the implementation 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 about the proposed resolution.

Some investors in Hong Kong, HSBC’s biggest market, have backed Ping An’s proposal. They have been upset after the lender stopped their payout in 2020. read more

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

Talks with Ping An had been purely commercial, the CEO said, in response to a reporter’s question about whether politics influenced the Chinese investor’s calls for the bank to exit.

HSBC has shared the results of an external consultant’s review of the validity of its policies with its board, but will not disclose them externally, Quinn told Reuters.

He said HSBC had disclosed detailed information about its international affiliation and earnings for all its shareholders to understand the value of the franchise and its strategy.

Ping An, which has not confirmed or publicly commented on the break-up proposal, owns about 8.3% of HSBC’s equity. A Ping An spokesman declined to comment on HSBC’s findings and its strategy.

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

Quinn, under whose leadership HSBC has plowed billions into Asia to drive growth, said the updated profitability guidance represented the bank’s best return in a decade and confirmed its global strategy.

Instead of a breakup, HSBC will focus on speeding up the restructuring of its US and European businesses and will rely on its global network to drive profits, the lender said.

Analysts at Citi said the new guidance signals a profit for HSBC. “The hit this quarter could lead to high single-digit pre-tax consolidated earnings,” they said in a report. https://bit.ly/3BwBEXV

HSBC pays an interim dividend of 9 US cents per share. It also said share buybacks were unlikely this year.

It reported a $1.1 billion charge for expected loan losses, as increased economic uncertainty and rising inflation put more borrowers in trouble.

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Reports by Anshuman Daga and Lawrence White; Editing by Muralikumar Anantharaman

Our standards: Thomson Reuters Trust Principles.

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