Bank dividend shows way the wind blows
The headlines on HSBC Holdings interim results may all be related to the big provisions for loan losses, but the key to the ongoing picture is that the interim dividend has been raised.
It is to rise 14 per cent to 37 US cents per share despite earnings per share falling 17 per cent to 90 cents.
The bank has a policy of 'progressive' dividends, meaning that they will go up unless there is very good reason to hold the line or bring them down, and the directors saw no such reason.
They look at three things when determining dividends.
These are the capital position of the bank, the need for fresh capital and the general outlook for the business.
The capital position is certainly in no danger. On total capital, the capital ratio is 14 per cent, and, on tier one capital, (the tight definition) it is 9.8 per cent, which is actually up from 9.3 per cent at the end of last year.
If these were the sorts of figures other Asian banks could boast there would be no Asian banking crisis.
Nor is there much need for fresh capital.
The bank is not on an expansion drive at the moment; although some of its operations could use a little topping up, they would not constitute a serious drain.
But most of all it is the general outlook for the business implied by the higher dividend that is worth noting.
In answering questions on the results, group chairman John Bond compared himself to a captain standing on the bridge in most of the storms the bank had encountered and said that, while the speed and severity of this one came as a surprise, he expected the 'HSBC ship will navigate strongly'.
It may be the sort of public-relations-speak one expects from a banker in difficult times, but there was no sign that the bank's management has been badly shaken by the events that brought the interim earnings down.
This stands in contrast to the position seven years ago, when earnings tumbled because of big lending mistakes.
The bank had mostly itself to blame that time. This time it is truly external events.
In hindsight, one might say that the bank would have done well to reduce its exposure in Thailand and Indonesia, where the real damage was done, at an earlier date, but when a ship sets a course it has to take the waves that come its way.
Navigation so precise that it can steer around the biggest of them has not yet been devised and calmer waters might not have taken this ship to the destination its shareholders wanted it to go.
But at least the builders have put in stabilisers to help it in storms. North America and Europe accounted for 59 per cent of interim profits. It considerably reduces the pitch and roll that purely Asian ships have encountered in this storm.
It is also allows this particular ship to take greater precautions against bad weather than it may need to. Bad and doubtful debts provisions of $1.146 billion were higher than required by the regulatory authorities in the countries where the bank operates. Captain Bond would not say how much higher but there is no reason to doubt him.
The big question, of course, is how long the troubles will last. None of the directors would be drawn out on that question, and one can't blame them for deciding not to navigate by crystal ball.
But again the general tenor of their press releases and their comments was one of a calm crew on the bridge, hands behind their backs, swaying a little with the movements of the ship but confident that the pumps could deal with any leaks the vessel might spring and that all storms end eventually.
And the way they have let it be known is in continuing to raise the dividend in line with the 'progressive' dividend policy. It is a statement as loud as any long speech could be that they consider the troubles to be temporary ones and that diversification out of Asia has proved itself.
It is a shareholder who says all of this, but one who considers it a case of putting money where the mouth is rather than of talking one's own book. This shareholder shall remain a passenger of the ship.