Hong Kong retail shareholders revive HSBC spin-off call

By Selena Li and Lawrence White

HONG KONG/LONDON (Reuters) - A group of HSBC's Hong Kong-based retail investors are seeking support to demand the bank restore its pre-pandemic dividend and set a plan to spin off assets. HSBC "underperforms its peers, violates dividend commitments (and) ignores shareholders' interests," Ken Lui, convener of the group , said in a Thursday newspaper advertisement.

London-headquartered HSBC, which is opposed to breaking up its business, dismissed the possibility of the proposal gaining traction among large shareholders.

"The conversations we've had with other institutional investors are that they also do not believe there is an economic case for splitting the bank," a spokesperson for HSBC said in a written reply to Reuters.

Analysts in London said that recent major asset sales by the bank, including its Canada business for $10 billion, would help HSBC's management resist spin-off calls.

"A spin-off would require material complexity and execution costs and is unlikely to lead to a re-rating," Viki Farmaki, financials analyst at State Street Global Advisors, said. Shareholders including Lui began pushing for the spin-off earlier this year. Their latest effort comes weeks after top shareholder, Ping An Insurance Group Co of China, made its first public comments on the push, urging HSBC to aggressively reduce costs and dispose of assets.

Lui said he had not contacted Ping An, but would welcome it joining the campaign.

Hong Kong is HSBC's biggest market and home to many retail shareholders. Some who are outside Lui's group have also vocally supported Ping An's spin-off proposal.

But they are unlikely to have the heft to force a vote on a break-up, analysts said.

"These moves will continue to be resisted particularly as parts of less profitable geographical business operations have been or are in the process of being sold off," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Shares in HSBC slid 1.5% in London, underperforming the wider European STOXX 600 banks index which fell 1%.

DIVIDEND SUSPENSION

Hong Kong retail shareholders were particularly upset when HSBC scrapped its formerly stable dividend in 2020 during the COVID-19 pandemic, when the Bank of England asked lenders to conserve capital.

It has resumed paying a dividend but not quarterly, and retail investors are dissatisfied with payouts that, overall, are smaller than before. HSBC has said repeatedly this year that it will resume quarterly dividends in early 2023. Lui told Reuters that for the campaign he had contacted about 500 investors in HSBC, from individuals to institutions. Under Britain's Companies Act of 2006, 100 minority shareholders with the same demand could propose a resolution at HSBC's annual meeting in April 2023, he said. It would call for a return to quarterly payments totalling $0.51 a share per year, HSBC's usual pre-pandemic rate, and for management to prepare a definite spin-off plan.

"We are targeting a dividend payout ratio of around 50% for 2023 and 2024," the HSBC spokesperson said, adding that the quarterly dividend payout could be at a lower level than the historical $0.10 per share.

In the past, HSBC usually paid $0.10 per share for three quarters then $0.21 in the final quarter.

(Reporting by Selena Li and Lawrence White; Editing by Anshuman Daga, Bradley Perrett and Alexander Smith)