HSBC’s dividend spree has been offset by concerns that rate hikes will end profits

  • Q4 pretax profit of $5.2 billion, beating analyst estimates
  • Equity targets were not raised, with Hong Kong shares falling 2.1%
  • A special $0.21/share dividend upon completion of the Canadian asset sale
  • A new share buyback will be considered in Q1 2023
  • ‘Don’t cut costs’ – CEO; $300 million hit from Russia sales

Singapore/London, Feb. 21 (Reuters) – HSBC’s ( HSBA.L ) quarterly profit jumped 92% as rising interest rates lifted net interest income, but its Hong Kong shares fell 2%. It has already peaked.

The London-headquartered bank ( HSBA.L ) plans to pay a special dividend of $0.21 per share on Tuesday, a preferred use of proceeds from the $10 billion sale of its Canada business, plus regular payments and a new share buyback.

Despite the dividend bonanza, the lender’s stock plunge has seen investors look beyond payouts and beyond the bank’s failure — as some expected — to achieve at least a 12% return on firm equity from this year, its key performance target.

HSBC’s asset disposals have picked up pace over the past year, fending off pressure from its largest shareholder, Bing An Insurance Group, which has urged the bank to divest its Asian business to boost revenue.

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“By delivering higher returns, we will have increased distribution capacity and will consider a special dividend once the sale of HSBC Canada is completed,” group chief executive Noel Quinn said in a statement.

Despite the improved profit performance, analysts noted HSBC’s conservative forecasts for net interest income next year.

The outlook was echoed by British rival NatWest, which last week warned that rising interest rates would not deliver long-term returns, sending its shares down nearly 10%.

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HSBC’s London-listed shares, currently trading at their highest in about three-and-a-half years, have fallen 45% since October 2022, as a drop in quarterly profit and an abrupt change in its chief financial officer spooked investors and sent its shares down 7. %

Since Quinn took over in March 2020, just as the Covid-19 pandemic spread around the world, shares have risen 25%, though underperforming the broader market’s 50% rise. So far this year, shares are up 20% against a 7% rise in the FTSE index (.FTSE).

In the fourth quarter, HSBC said expected loan losses rose to nearly $1.4 billion, and included charges related to exposure in China’s commercial real estate sector and corporate exposures in Britain. This exceeded market expectations of $1.05 billion.

‘no loss’

Quinn, who has overseen a job-cutting program aimed at stripping layers from the bank’s bloated management structure in recent years, said more is to come.

“There will be no relaxation in spending… We are now looking at $300 million in additional spending for separation in 2023,” he said.

The Asia-focused bank, which counts Hong Kong as its biggest market, said it will return to paying a quarterly dividend in 2023 and will consider a new share buyback in the first quarter of 2023.

It reported fourth-quarter revenue of $5.2 billion, up from $2.7 billion a year earlier and beating the average estimate of $4.96 billion by analysts compiled by the bank.

HSBC said annual expected loan losses rose to $3.6 billion, higher than analysts’ estimate of $3.2 billion, as rising inflation pressured borrowers and lingering problems in China’s property market.

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Despite the upturn in the fourth quarter, annual profit for 2021 fell to $17.5 billion from $18.9 billion due to a $2.4 billion impairment related to the sale of its retail banking operations in France.

That matched the $17.5 billion average estimate of 22 analysts compiled by the bank.

Meanwhile, HSBC still expects to complete the sale of the Russia business in the first half of 2023, facing a $300 million loss.

Reporting by Anshuman Taka and Lawrence White; Editing by Kenneth Maxwell

Our Standards: Thomson Reuters Trust Principles.

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