HSBC finds itself caught between a rock and hard place
- With dividends cancelled because of an order by British regulators, the bank – having abandoned Hong Kong in 1993 – now has few friends here even if it wants to return
HSBC chairman Mark Tucker is probably not a punk rock fan but he may find special resonance in this 1980s classic from The Clash: “Should I stay or should I go now? If I go, there will be trouble. And if I stay it will be double.”
The shock is understandable. HSBC has faithfully paid investors continuously since 1946, a proud tradition that has also been one of its main attractions to local conservative retail investors despite its lacklustre stock performance over the past decade.
The bank makes most of its profits in Hong Kong and the rest of Asia, and is pivoting its business on China’s growth. Unsurprisingly, many investors and reportedly even some bank insiders have raised the issue of homecoming again.
HSBC is well capitalised and could well have paid the dividends. But British authorities prefer to push banks to keep their capital during the coronavirus pandemic and economic downturns so as to lend to small businesses and homeowners, as well as waiving banking fees to low-income customers. Hurting investors and shareholders far away was not a significant consideration.
This is a pity, as it exposes again the city’s financial vulnerabilities. Not only have we outsourced our monetary policy to the United States Federal Reserve with the US dollar peg, even dividend payments by some of the world’s largest banks are now decided in faraway London; so much for being a former Crown colony.