HSBC resumes dividend, increases Asia investment by US$6 billion as last year’s profit decline beats market forecasts
- HSBC to restart dividend, paying 15 US cents a share for 2020
- Annual pre-tax profit was US$8.8 billion, above consensus estimate of US$8.3 billion
HSBC, the biggest of Hong Kong’s three currency-issuing banks, said it would resume paying dividends to shareholders after a fourth-quarter net profit helped it report a smaller-than-forecast decline in 2020 earnings.
The London-based bank, which generates much of its revenue in Asia, also said it would invest US$6 billion in its wealth management and wholesale banking operations in Asia over the next five years as it places greater emphasis on the region. That would include increasing its wealth sales force in Hong Kong, Singapore and other parts of Southeast Asia.
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The bank earned a net profit of US$562 million in the fourth quarter, improving from the previous year’s US$5.5 billion loss that had included a goodwill impairment of US$7.3 billion associated with its investment bank and commercial unit in Europe and US$400 million in restructuring charges.
For the full year, HSBC reported a pre-tax profit of US$8.8 billion, beating the consensus estimate of US$8.3 billion by analysts polled by the bank. That was a 33.8 per cent decline from the pre-tax profit of US$13.3 billion a year earlier. The bank’s net profit fell to US$3.89 billion, from US$5.97 billion a year ago.
Provisions for potential soured loans, known as expected credit losses, reached US$8.8 billion in 2020, the low end of HSBC’s projected range for the year.
On Tuesday, HSBC said it would make a full-year dividend payout of 15 US cents a share for 2020 and would target a payout ratio of 40 per cent and 55 per cent of reported earnings for 2022 onwards. The dividend will be payable on April 29.
The bank said it would not pay quarterly dividends in 2021, but would evaluate whether to pay an interim dividend when it reports half year results in August.
The lender paid out 30 US cents a share in interim dividends in 2019 before cancelling its final expected dividend of 21 US cents a share in April 2020 after a request by the Prudential Regulation Authority (PRA), an arm of the Bank of England.
The bank’s shares have since recovered those losses and jumped more than 7 per cent last week on investor anticipation of the dividend restart and growing optimism about the pace of the economic recovery from the coronavirus pandemic.
Shares of HSBC rose 0.4 per cent to close at HK$46.70 in Hong Kong on Tuesday.
Citing historically low interest rates and a challenging operating environment, HSBC also lowered its profitability target for return on average tangible equity to 10 per cent over the medium term.
Hang Seng attributed the decline to lower transaction volumes by commercial and retail customers as the coronavirus pandemic weighed on investments and spending activity in Hong Kong.
In addition to shifting more capital to Asia, HSBC said it was exploring “organic and inorganic options” for its US retail bank and was in negotiations regarding a potential sale of its French business.
“We are giving consideration to some of the heads of our global businesses being located in Hong Kong,” Quinn said on Tuesday. “We think it would be good to have them closer to where the opportunity for growth is and to serve our clients in Asia directly. That’s something I benefited from myself when I was in Hong Kong living there.”