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Banking giant HSBC has vowed to return shareholder dividend payouts to pre-pandemic levels “as soon as possible” as it comes under pressure from its biggest investor to break up the group.
Chief executive Noel Quinn made the pledge as he seeks to head off calls from China’s Ping An Insurance Group – which owns around 9.2% of HSBC’s shares – to spin off its burgeoning Asian arm from the UK business.
The group reported a 15%, or 1.7 billion US dollar (£1.4 billion), drop in first-half pre-tax profits to 9.2 billion US dollars (£7.5 billion) for the six months to June 30 as it joined rivals in setting aside cash to cover potential loan losses, booking a 1.1 billion US dollar (£902 million) charge.
It said this partly reflected “heightened economic uncertainty and inflation” as soaring cost pressures hit the UK and wider global economy.
Our Interim Results demonstrate that our growth and transformation strategy is delivering good revenue momentum, tight cost control and improving returns.
— HSBC (@HSBC) August 1, 2022
But the profit out-turn for the second quarter was better than expected and the group promised it will revert to paying quarterly dividends next year.
Mr Quinn said: “We understand and appreciate the importance of dividends to all of our shareholders.
“We will aim to restore the dividend to pre-Covid-19 levels as soon as possible.
“We also intend to revert to quarterly dividends in 2023.”
Dividends at HSBC was one of the key reasons why Ping An has been pushing for a break-up, after the Bank of England slapped a ban on UK lenders from paying out dividends during the early stages of the pandemic to ensure the sector was resilient.
This clampdown was lifted in July last year, but Ping An has argued that Asian investors felt cheated out of their dividend.
HSBC is based in London and has a large presence in the UK market but makes most of its profits in Asia.
— HSBC (@HSBC) August 1, 2022
The bank’s board will meet with retail investors in Hong Kong on Tuesday in what promises to be a tense gathering.
A Hong Kong politician, Christine Fong, has also backed the calls for HSBC’s Asian business to be spun off and wants representatives of Ping An to be appointed to the bank’s board.
But Mr Quinn said in the group’s half-year results that its “internationalism remains the most defining characteristic of our identity”.
He added: “Serving customers across borders is what we do best. It is how we can best help them to grow, and, we believe, the fastest way to accelerate returns for our shareholders.
The group said it is two-and-a-half years into an overhaul and has cut costs worldwide, but has “more to do before December – particularly to further simplify the organisation”.
“I remain committed to achieving stable adjusted costs in 2022 compared with last year, despite rising inflation, Mr Quinn said.
Alongside the dividend pledge, it also increased its interim shareholder payout to nine cents a share, compared to seven cents a share a year ago, but down from 18 cents in the second half.
Shares in HSBC lifted 6% after the figures.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said there were some “warning signs” in the HSBC’s results, given the hefty charge it booked.
She said: “That’s more than undone the helping hand from rising interest rates on the bottom line.
“This gives activist shareholders even more clout to pressure the business to find new, potentially radical, ways to propel growth.”