HSBC Steps Up Dividend Plans, Eyes Buybacks as Outlook Brightens

(Bloomberg) -- HSBC Holdings Plc is accelerating plans for shareholder payouts as it said the global economy was starting to emerge from the worst effects of the pandemic.

The bank said it now expects to meet its target of paying out 40% to 55% of earnings in dividends this year, rather than next. It is also examining the possibility of share buybacks, the latest lender to unveil such plans after the Bank of England removed restrictions imposed at the height of the pandemic.

“We definitely feel more confident,” Chief Financial Officer Ewen Stevenson said on Bloomberg Television. “We will keep buybacks under review” together with dividends.

HSBC is one of the biggest dividend payers in European banking, and after a year of restrictions is expected to set aside more than any of its rivals this year and next, according to estimates collated by Bloomberg Intelligence.

The bank will pay a 7 cents a share interim dividend after adjusted second-quarter profit doubled from a year earlier to top analyst estimates, according to a statement Monday. The jump came as Europe’s biggest lender joined its British peers in reversing loan provisions that it booked in the early stages of the pandemic.

Costs were higher than expected, driven by spending on technology and higher performance-related pay, even after HSBC reduced head count by around 3,500 in the first half of the year.

Revenue at the investment bank was down more than a fifth as trading revenue slumped on lower market volatility. Banking revenue at the unit also dropped on lower client activity and lower interest rates.

The bank’s shares were up 0.6% at 11:02 a.m. in London. They have gained 5.5% this year.

Wealth Overhaul

HSBC began a fresh restructuring this year that aims to refocus the bank on the Asian markets where it makes most of its money. The bank wants to manage more assets for the region’s wealthiest residents -- a lucrative but highly competitive market. In May, HSBC sold 90 branches in the U.S., marking a retreat from mass-market banking in the country. Weeks later, the company agreed a potential disposal of its unprofitable French retail business.

“We have taken firm steps to define the future of our U.S. and continental Europe businesses, and further enhanced our global wealth capabilities,” Chief Executive Officer Noel Quinn said in the statement.

The bank said it has hired 600 wealth managers in Asia in the first half of the year and is eyeing deals in the region.

“We are currently looking at a number of smaller opportunities in the wealth space across Asia, spanning insurance, asset management and traditional wealth,” CFO Stevenson said in a phone interview Monday, adding on a call with analysts that the lender was looking at three or four potential deals, each about $500 million in size.

Asia Focus

Asia continued to provide the bedrock of HSBC’s earnings, accounting for almost two-thirds of the bank’s reported pretax profits in the first half of the year. As well as moving several of its most senior executives to Asia, the lender is increasing the amount of capital it deploys there and said that risk-weighted assets in the region increased by 6% from the start of the year

In HSBC’s core market of Hong Kong, Quinn said on a call with journalists Monday that the local capital markets had been given a boost by a shift in business from the U.S. amid a crackdown on Chinese listings there. Quinn said that despite this there was “significant liquidity” in Hong Kong supporting the market.

The bank said about a quarter of a $35 billion year-on-year increase in customer lending at its wealth and personal banking unit related to short-term loans in Hong Kong linked to initial public offerings, where clients borrow money to fund their purchase of shares in the latest listings.

Loan Losses

HSBC joins rivals Barclays Plc and Lloyds Banking Group Plc over the past week in unwinding some of their preparations for a wave of bad loans during the pandemic. Banks have reported strengthening demand for home loans and low levels of impairments as Britons get back to work and leisure without restrictions.

Read more about European banking results

In April, HSBC began to release credit provisions it had piled up in the early stages of the Covid-19 outbreak, saying the outlook for U.K. borrowers in particular was improving after more than a year of pandemic turmoil.

What Bloomberg Intelligence Says:

HSBC’s decision to implement a payout of 40-55% from this year, not 2022 as previously guided, combined with a comfortable revenue and profit beat at 2Q are positive signs. The payout reflects management confidence that growth is returning sustainably, and will be a relief to the bank’s myriad Hong Kong retail investors.

-- Jonathan Tyce, BI banking analyst

This quarter, the lender released a net $284 million from last year’s provisions for loans, mainly at its U.K. unit, compared to a $4.2 billion charge in the same period last year. HSBC said in the statement it expects impairment charges for 2021 to be “materially lower” than its medium range and “possibly a net release for the year.”

Other key figures from HSBC’s second-quarter earnings include:

• Wealth balances up 18% from a year earlier to $1.7 trillion
• Net interest income of $6.6 billion, down 9% compared to last year
• CET1 ratio, a key measure of financial strength, was 15.6%
• Lender has exited from or downsized 77 offices since January 2020

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