HSBC rejects Ping An, promises higher dividends

LONDON/SINGAPORE, 1 August (Reuters) – HSBC (HSBA.L) China’s largest shareholder pushes back Ping An Insurance Group Co’s proposal (601318.SS) He said it would be costly to split the lender as Europe’s largest bank announced profits that beat expectations and promised larger dividends.

London-based HSBC’s comments on Monday represent Ping An’s most direct defense since the lender’s proposal to regulate its Asian operations was cracked in April. It comes ahead of HSBC’s meeting with shareholders in Hong Kong on Tuesday to discuss the Chinese insurer’s offer.

And in moves to satisfy investors, HSBC has increased its target of return on tangible equity, a key performance metric, to at least 12% next year, compared to the previously ticked 10% minimum.

The bank cited falling costs, a 4% increase in adjusted revenues, and a rising net interest margin as increases in central bank interest rates improved lending yields as key reasons for its increased optimism.

It also promised to return to paying quarterly dividends from the beginning of 2023.

Shares of HSBC rose almost 8% in London, trading at their highest level since late June.

“We sympathize with Ping An and all our shareholders as our performance hasn’t been where it should have been for the past 10 years,” Chief Executive Officer Noel Quinn, who has led the bank for more than two years, told analysts.

Asia is HSBC’s largest profit center, with the region’s share of lender profits increasing from 64% a year ago to 69% in the first half.

Without citing Ping An directly in its earnings presentation earlier on Monday, HSBC said a split would mean a potential long-term blow to the bank’s credit rating, tax bill and operating costs, and would introduce immediate risks in the conduct of any split. merger.

“There will be significant enforcement risk over a three to five-year period when customers, employees, and shareholders will all be distracted,” Quinn said in the call regarding the offer to leave. Said.

Some investors in Hong Kong, HSBC’s largest market, supported Ping An’s proposal. They were upset after the lender canceled its payment in 2020. Read more

Quinn said HSBC will aim to return its dividend to pre-COVID-19 levels as soon as possible.

In response to a reporter’s question about whether the Chinese investor’s call to break up the bank influenced politics, the CEO said the talks with Ping An were all around business issues.

Quinn told Reuters that HSBC has shared with the board the findings of a review by outside consultants on the validity of its strategy, but will not publish them externally.

Ping An, which has not publicly announced or endorsed its withdrawal proposal, owns approximately 8.3% of HSBC’s equity. A Ping Spokesperson declined to comment on HSBC’s results and strategy.

Reuters reported last month, citing sources, that HSBC is poised to accelerate its exit from non-core markets and to place additional capital in Asia to repel Ping An’s bid to leave. Read more

EARNING TRANSITION

Last week, Europe’s lenders offered some positive surprises on profits. Read more

Dual-listed HSBC followed in their footsteps, and its pre-tax profit for the six months through June 30 fell to $9.2 billion from $10.84 billion a year earlier, but beating the bank-compiled analysts’ average estimate of $8.15 billion. left. https://bit.ly/3BwBEXV

“The combination of higher interest rates and therefore increased net interest margins, as well as cost control and lower expectations, means that HSBC’s second-quarter results are pleasing to investors,” said Russ Mold, Investment Director at AJ Bell.

Quinn, under whose leadership HSBC has poured billions of dollars into Asia to support growth, said the upgraded profitability guideline represents the bank’s best returns in a decade and confirms its international strategy.

The lender said HSBC will focus on accelerating the restructuring of its US and European businesses rather than disbanding, and will rely on its global network to generate profits.

As a result of these moves, Quinn said the bank’s risk-weighted asset reduction program has reached a cumulative total of $114 billion and is on track to achieve at least $120 billion in savings by the end of this year.

Quinn said the freed capital will be used to invest in “strong areas”, particularly in Asia.

Analysts at Citi said the new guidance hints to the upside for HSBC. “Success this quarter could result in higher single-digit consolidated profits ahead of tax hikes,” they said in a report.

HSBC pays an interim dividend of 9 US cents per share. He also said that stock buybacks are unlikely this year.

Reporting from Anshuman Daga and Lawrence White; Editing Muralikumar Anantharaman, Kirsten Donovan

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