HSBC under SEC probe for ‘princeling’ hiring in Asia; shares suffer after worse-than-expected earning

Here is a summary of what has happened so far: HSBC shares decline 2.2 per cent at close, after reporting a surprise net loss of US$1.33 billion in the fourth quarter and a worse-than-expected pretax profit of US$18.9 billion for 2015 HSBC confirms it’s under investigations by the US SEC for its hiring of princelings, a term usually referring to the offspring of Communist Party officials in China However, Hang Seng Bank shares rally into close, up 6.5 per cent, after its net profit meets analyst estimates and the company announces a special dividend of HK$3 per share for 2015 Listen to the audio webcast of HSBC’s conference call starting at 4:15 pm Hong Kong time. 6:45 pm: Laura He HSBC is not the only bank investigated by the SEC for its hiring practices in China. The US regulator has started a probe against JP Morgan over its employment of people tied to Communist Party officials in China since 2013. Other banks, including Goldman Sachs, Morgan Stanley, Citigroup, UBS, and Credit Suisse, have also received letters from the SEC requesting information on their hiring in Asia. Read more: JP Morgan executives linked to Asia hiring probe to leave bank US probe wider on Wall Street firms’ China hiring practices 5:27 pm: Enoch Yiu The US Securities and Exchange Commission (SEC) is investigating HSBC and other financial institutions in hiring the so-called princelings, a term referring to the offspring of government officials or employees of state-owned enterprises in Asia-Pacific, and the impact could be “significant”, HSBC said in its earnings statement on Monday. “HSBC has received various requests for information and is cooperating with the SEC’s investigation. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant,” HSBC said. 4:20 pm: Enoch Yiu Rose Lee, chief executive of Hang Seng Bank, expected the operating environment in 2016 to be worse than last year. “The operating environment this year is going to be more challenging than last year. Both Hong Kong and mainland economies have slowed down. This will reduce the demand for loans,” she said. “Our bank will be more cautious in loan approvals.” 4:15 pm: Xie Yu Shares of HSBC Holdings ended 2.19 per cent lower at HK$49.15. Hang Sang Bank soared 6.49 per cent to HK$134.50. 4:05 pm: Liz Mak HSBC’s call with analysts is due to start in 10 minutes. Ahead of the call, Ian Gordon, head of bank research at Investec said in London that HSBC’s pretax profit was a big miss on market expectations. “The $1.5bn UK bank levy charged in Q4 2015 offers a reminder of why we believe HSBC was mistaken in its decision last week to retain its UK domicile,” he said. 4:01 pm: Enoch Yiu Lee said the special dividend and full-year dividend payments would cost the bank HK$16.63 billion, 60 per cent of the company’s profit. Excluding the special dividend, the dividend payout ratio is 78 per cent. “This is a high payout ratio and I hope shareholders would accept it and consider it low,” she said. 3:37 pm: Enoch Yiu Hang Seng Bank chief executive Rose Lee said China’s bad debt situation has improved in the second half of the year and the bank will continue to expand in the mainland despite its economic slowdown. “The worst is over for China’s bad debt situation. However, we will continue to be cautious and won’t be too aggressive in lending in China,” she said. “The slowdown of mainland economy has an impact in both Hong Kong and China businesses. However, Hang Seng Bank will continue to take a cautious approach to development in the mainland. Hong Kong and mainland economies have been integrated to an extent that we would develop in both Hong Kong and the mainland.” Lee added that the bank would continue to hire staff in its management trainee programme, compliance department, and other parts of the business. “ We will increase salary and offer compensation to staff based on individual performance.” 3:25 pm: Enoch Yiu Hang Seng Bank chief executive Rose Lee said Monday at a press briefing that the bank faces a challenging time ahead. “The effects of economic slowdown on the mainland, normalisation of monetary policy in the US and ongoing uncertainty in Eurozone are creating increasing challenging conditions for (our) business. We will further strengthen credit risk management and maintain high standard of corporate governance,” she said. 3:15 pm: Xie Yu HSBC widened losses to 3.09 per cent by 3.12pm, trading at HK$48.70. However, Hang Seng Bank extended gains, trading up 5.7 per cent at HK$133.50. 1:49 pm: Laura He HSBC’s earning results came days after the banking giant decided to keep its headquarters in London rather than moving to Hong Kong, which contributes much of its profits. It has triggered a debate in the markets about whether the bank made the decision due to political reasons rather than business factors. HSBC announces it will stay in Britain, rejecting move to Hong Kong https://t.co/6dd96y65CF pic.twitter.com/UvMTvGLvyc — SCMP News (@SCMP_News) February 15, 2016 #Social #HongKong @SocialNewsCorp https://t.co/6BXuFgnB8f Via #Twitter @vkusman @SCMP_Sport @equidia — Social Media China™ (@SocialPRC) February 15, 2016 1:36 pm: Xie Yu Louis Tse, director of VC Brokerage, said investors may worry about the future of HSBC regarding its management plan and dividend policy. “But so far, the impact of HSBC’s losses on the stock markets seems to be offset by that of Hang Seng Bank’s earnings. Hong Kong investors seem to be in a good mood in general, as the positive sentiment in A-shares markets after the CSRC (China Securities Regulatory Commission) announced a new chairman has spilled over to Hong Kong.” 1pm: Xie Yu HSBC shares fell 0.40 per cent to HK$50.40 at1.03pm, after it announced a surprise net loss in the fourth quarter at noon. It had closed the morning session higher by 1.49 per cent up at HK$51. However, Hang Seng Bank jumped 3.64 per cent to HK$130.90 after its net profit increased 82 per cent to HK$27.49 billion last year, in line with market expectations. It had closed the morning session higher by 1.11 per cent at HK$127.70 HSBC said its 2015 pretax profit reached US$ 18.9 billion, missing analyst estimates of US$21.6 billion. The forth quarter performance came as a major drag. “In Asia, the fourth quarter of 2015 saw lower-than-expected credit growth with a continuation of the slowdown in trade, the repayment of some existing corporate loans and slower demand for new lending,” the company said in a filing to the Hong Kong Exchange and Clearing. 1pm: Xie Yu The Hang Seng Index traded at 19,434.14, 148.64 points or 0.77 per cent up at 1.01 pm after lunch break. Meantime, the H-share Index, tracking mainland based companies, traded at 8,210.40, 97.83 points, up 1.21 per cent. 12:59 pm: Enoch Yiu Louis Tse, director of VC Brokerage, said Hang Seng Bank’s results and special dividend payment are both in line with market expectations. However, he expected the bank would still face headwind this year. “Hang Seng Bank has a wide business exposure in mainland China, where it is facing an economic slowdown. In addition, the bank is a major mortgage lender and may take a hard hit from weak local property market,” Tse said. “Investors need to be cautious about the bank’s outlook.” 12:53: Enoch Yiu Hang Seng Bank announced a special dividend of HK$3 per share and a final dividend of HK$2.40 per share for 2015. Therefore, the bank’s full-year dividend reached HK$8.70, compared with a full-year divident of HK$5.6 per share in 2014. 12:12 pm By Enoch Yiu Hang Seng Bank’s 2015 results were in line with market expectation. The Hong Kong-based lender, where HSBC has a 62 per cent stake, said its net profit jumped 82 per cent to HK$27.49 billion last year, mainly due to one-off gains from the disposal of its investments in mainland lender Industrial Bank. The results were within the estimated range of HK$26.30 billion to HK$28.86 billion. Excluding the one-off gain, Hang Seng Bank’s net profit stood at HK$16.75 billion, up 4 per cent from a year earlier. The bank’s vice-chairman and chief executive Rose Lee Wai-mun is going to hold a press conference at 3pm with other senior executives. Read more: Hang Seng Bank results meet expectations in 2015 with profits up 82pc 12:07 pm By Liz Mak HSBC results came in worse-than-expected. Its 2015 pretax profit reached US$ 18.9 billion, missing analyst estimates of US$21.6 billion. Read more: HSBC’s 2015 pretax profit misses analyst expectations, at US$18.9bn 12:02 pm: Enoch Yiu HSBC, which has just decided to keep its headquarters in London rather than moving to Hong Kong, is estimated by analysts to post a pretax profit at US$21.6 billion last year, up 16.79 per cent from a year earlier. 11:40 am: Enoch Yiu Hang Seng Bank is expected to have a strong growth of its net profit last year mainly due to one-off gains from the disposal of its investments in mainland lender Industrial Bank. Brokers have estimated the lenders could have a profit ranging from HK$26.30 billion to HK$28.86 billion, representing an increase of 74 per cent to 91 per cent from the net profit of HK$15.13 billion in 2014. 11:25 am: Brendan Clift HSBC shares are trading up 0.8 per cent to HK$50.65 so far this morning. Hang Seng Bank is similarly up by 0.7 per cent to HK$127.20. Investor caution is apparent as both are slightly underperforming the Hang Seng Index, which has picked up 0.96 per cent to 19,470.32 points. Below are the year-to-date charts of both lenders’ share prices. Click to enlarge the charts.