1st Aug 2022 18:29
(Alliance News) - HSBC Holdings PLC's intention of higher returns is unlikely to do enough to quell its largest shareholder's wish to split its Asian operations from the rest of the bank.
HSBC on Monday reported a drop in profit in the first half, on a rise in expected credit losses, but has vowed to up its returns to shareholders as the bank looks set to benefit from the current interest rates cycle.
In the six months to June 30, pretax profit fell to USD9.18 billion from USD10.84 billion a year before. In the first half, net interest income rose to USD14.45 billion from USD13.10 billion, aided by rising central interest rates around the world. The lender's net interest margin improved to 1.30% from 1.21%.
Net fee income slipped to USD6.06 billion from USD6.67 billion.
The bank declared an interim dividend of USD0.09, rising from the USD0.07 distributed a year prior. Looking ahead, HSBC said it is targeting a payout ratio guidance of around 50% for 2023 and 2024.
"We are confident of achieving a return on tangible equity of at least 12% from 2023 onwards, which would represent our best returns in a decade," said Chief Executive Noel Quinn. "As a result, we are providing more specific dividend payout ratio guidance of around 50% for 2023 and 2024. We understand and appreciate the importance of dividends to all of our shareholders. We will aim to restore the dividend to pre-Covid-19 levels as soon as possible."
Meanwhile, HSBC pushed back against calls for a break up from its largest shareholder, Ping An, which has a 9.2% stake.
The bank has previously hinted it wants to keep its current structure while continuing a pivot to Asia.
Quinn, speaking later on Monday, suggested such an "alternative structure" would have a "negative" impact on HSBC.
"It has been our judgment that alternative structural options will not deliver increased value for shareholders," Quinn told analysts on a conference call. "Rather, they would have a material negative impact on value."
HSBC Chair Mark Tucker backed the lender's strategy saying that it leaves it well-positioned to capitalise on the current interest rate cycle.
In April, Ping An called on HSBC to spin off its Asian operations, in a bid to unlock shareholder value amid tensions between China and the West.
"Breaking up is never easy to do and HSBC is being pretty steadfast in resisting the push from major shareholder Ping An to divorce its Asian operations from the rest of the bank and list that part in Hong Kong. As it looks to resist the pressure for a split the company is hoping to win shareholders over with a pledge to pay quarterly dividends again from next year, as well as boosting its profitability goals," said AJ Bell's Russ Mould.
"The dividend pledge is important as many of its Hong Kong shareholders, under its existing dual-listed arrangement, were mightily unimpressed with the suspension of dividend payments during the pandemic. However, this is unlikely to do enough to satisfy Ping An's appetite for major structural change and this battle of wills is likely to continue for the time being at least," Mould added.
By Arvind Bhunjun; [email protected]
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