HSBC stops Ping An breakup call, raises profit and pay target

  • HSBC returns to pay quarterly dividends from 2023
  • Aims to win over investors with higher profitability goal
  • He says the separation of the Asian business carries enormous risks
  • London shares rise 6%

LONDON/SINGAPORE (Aug. 1) (Reuters) – HSBA.L has rejected a proposal by China’s Ping An Insurance Group (601318.SS) to split the bank, a move Europe’s largest bank said would be costly. . It posted earnings that beat expectations and promised a bigger dividend.

London-based HSBC’s comments on Monday represented the most direct defense yet since news of Ping An’s proposal to split up the lender’s operations in Asia came to light in April. This comes ahead of HSBC’s meeting with shareholders in Hong Kong on Tuesday where the Chinese insurance company’s proposal will be discussed.

And in the moves that pleased investors, HSBC raised its target for return on tangible equity, a key performance measure, to at least 12% from next year from a minimum of 10% set earlier. He also pledged to return to paying a quarterly dividend beginning in early 2023.

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HSBC shares rose 6 percent in early trading in London on Monday, their highest level since the end of June.

“We sympathize with Ping An and all of our shareholders because our performance hasn’t been where it should be over the past 10 years,” CEO Noel Quinn, who has run the bank for more than two years, told analysts.

Asia is HSBC’s biggest profit center, with the region’s share of the bank’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 on Monday, HSBC said the breakup would mean a potential long-term hit to the bank’s credit rating, tax bill and operating costs, and bring immediate risks in the execution of any offer or merger.

“There will be significant implementation risks over a period of three to five years when customers, employees and shareholders become distracted,” Quinn said on the call regarding the separation proposal.

Some investors in Hong Kong, HSBC’s biggest market, have expressed support for Ping An’s proposal. They were upset after the lender canceled their payments in 2020. Read more

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

The CEO said discussions with Ping An were purely about commercial issues, responding to a reporter’s question about whether the policy was affecting the Chinese investor’s call for the bank to break up.

Quinn told Reuters that HSBC had briefed its board of the results of a review by outside consultants on the validity of its strategy, but would not publish it externally.

He said HSBC has released detailed information on its international contacts and revenue for all of its shareholders to understand the franchise’s value and strategies.

Ping An, which has not publicly confirmed or commented on the decommissioning proposal, holds about 8.3% of HSBC’s equity. A Ping An spokesperson declined to comment on HSBC’s results and strategy.

Knock profits

Last week, lenders in Europe presented some positive surprises in terms of earnings. Read more

Listed HSBC followed suit, reporting pre-tax earnings of $9.2 billion for the six months ended June 30, down from $10.84 billion a year earlier, but beating the average analyst estimate of $8.15 billion the bank had collected.

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

Rather than disintegrating, HSBC will focus on accelerating the restructuring of its businesses in the United States and Europe, and will rely on its global network to make profits, the lender said.

Analysts at Citi said the new guidance points to higher earnings for HSBC. “This quarter’s win could lead to high single-digit pre-tax consolidated earnings,” they said in a report.

HSBC pays a provisional dividend of 9 US cents per share. She also said that share buybacks remain unlikely this year.

It reported a charge of $1.1 billion for expected credit losses, as escalating economic uncertainty and rising inflation put more borrowers in difficulty.

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(Reporting by Anshuman Daga and Lawrence White) Editing by Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.

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