February 21, 2024

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HSBC’s dividend spree made up for concern that the price-rising dividend party might be over

HSBC’s dividend spree made up for concern that the price-rising dividend party might be over
  • Fourth-quarter profit before tax was $5.2 billion, beating analyst estimates
  • Return on equity was not raised, and Hong Kong shares fell 2.1%
  • Special dividend of $0.21/share once sale of Canadian assets is completed
  • New share buybacks will be considered in the first quarter of 2023
  • “Never compromise on costs” – CEO; $300 million hit from the sale of Russian operations

SINGAPORE/LONDON (Reuters) – HSBC Bank (HSBA.L) quarterly profit rose 92% as higher interest rates swelled net interest income, but its shares in Hong Kong fell 2% as the cautious outlook left investors pondering whether a rate hike would Interest may lead to inflated net income. It has already peaked.

The London-based bank (HSBA.L) said on Tuesday it plans to pay a special dividend of $0.21 per share, as a priority use of proceeds from the $10 billion sale of its Canada business, as well as more regular payments and new share buybacks.

Although the dividend has risen, the lender’s share decline suggests that investors were looking beyond payments to the bank’s failure to raise – as some had predicted – its key performance target of reaching a return on tangible equity of at least 12%. From this year onwards.

HSBC’s asset disposals have accelerated in the past year as it brushed off pressure from its largest shareholder, Ping An Insurance Group, which urged the bank to spin off its Asian business to boost returns, a move HSBC rejected.

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“While achieving higher returns, we will increase distribution capacity, and we will also consider a special dividend once the sale of HSBC Canada is completed,” Group CEO Noel Quinn said in a statement.

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Despite the improved earnings performance, analysts noted HSBC’s conservative forecast for net interest income next year, suggesting that the boon from rising interest rates may have already peaked.

The forecasts echoed those of British competitor NatWest, which warned last week that higher interest rates may not provide the long-term profits investors hoped for, sending its shares down nearly 10%.

London-listed HSBC shares, which are currently trading at their highest levels in about three-and-a-half years, have rebounded 45% from their lows in October 2022 when a drop in quarterly profit and a sudden change in chief financial officer spooked investors and sent its shares down 7%. %.

Since Quinn took over in March 2020 just as the COVID-19 pandemic was sweeping across the world, shares are up 25% although they still underperform a 50% rally in the broader market. So far this year, shares are up 20% against a 7% gain in the FTSE Index (.FTSE).

For the fourth quarter, HSBC said expected credit losses nearly tripled to $1.4 billion and include fees related to exposure to commercial real estate in China, as well as corporate exposure in Britain. This was above market expectations of $1.05 billion.

“no dilution”

More is to come, said Quinn, who has overseen a program of job cuts in recent years aimed at stripping layers of the bank’s bloated management structure.

“There will be absolutely no cost mitigation… We are now considering up to $300 million in additional costs for separation in 2023,” he said.

The Asia-focused bank, which counts Hong Kong as its largest market, also said it will return to paying a quarterly dividend in 2023, and advance consideration of new share buybacks to the first quarter of 2023.

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It reported pre-tax earnings of $5.2 billion for the fourth quarter, up from $2.7 billion a year ago and ahead of the average analyst estimate of $4.96 billion collected by the bank.

HSBC said expected annual credit losses rose to $3.6 billion, more than the $3.2 billion expected by analysts, due to high inflation squeezing borrowers and persistent problems in China’s real estate market.

Despite the increase in the most recent quarter, annual profit fell to $17.5 billion from $18.9 billion for 2021, due to a $2.4 billion impairment related to the sale of the bank’s retail operations in France.

That matches an average estimate of $17.5 billion by 22 analysts compiled by the bank.

Meanwhile, HSBC said it still expected to complete the sale of its Russia business in the first half of 2023, incurring a loss of $300 million.

(Reporting by Anshuman Daga and Lawrence White) Editing by Kenneth Maxwell

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