HSBC Holdings PLC is set to sharply increase dividend payments this year in an attempt to placate investors calling for its breakup, but the payouts are unlikely to reach pre-pandemic levels.
The U.K.-based bank is forecast to pay a dividend per share of 31 cents in 2022, up 24% from last year, according to S&P Global Market Intelligence analyst Yash Jain. The figure is still 40% below the 51 cents per share paid in 2019.
HSBC's largest shareholder, Ping An Insurance (Group) Co. of China Ltd., has told the bank's board that the lender should consider creating a separate Hong Kong-based bank to boost returns to shareholders. Ping An holds an 8.3% stake in HSBC, according to Market Intelligence.
Ping An has received backing from some Hong Kong-based retail investors who were angered when HSBC suspended dividend payments in 2020 during the COVID-19 pandemic at the behest of the Bank of England. HSBC has a considerable Hong Kong-based retail investor base, many of whom rely on dividends to supplement their income.
The predicted full-year 2022 dividend payment represents a payout ratio of 52% based on current earnings projections from brokers, Jain said. This is toward the top end of the bank's payout ratio target range of 40% to 55%.
Jain predicts a dividend per share of 42.5 cents in 2023, with three quarterly payments of 8.5 cents.
"That level would match the payout ratio target of 50% and will bring the distribution closer to the pre-pandemic level of $0.51," Jain said via email.
Pivot to Asia
HSBC is targeting an improved payout ratio of about 50% of reported earnings per share for 2023 and 2024, the bank said in its first-half earnings presentation. It is also targeting a return on tangible equity — a measure of profitability — of at least 12% from 2023 onward. Annualized ROTE was 9.9% in the first half of 2022.
The bank expects to generate $37 billion of net interest income in 2023, compared with the $31 billion it expects for 2022, as central banks raise interest rates. It is already part-way through its transformation, which will see it "pivot to Asia" by reducing capital in the U.S. and Europe and switching it to Asia, where HSBC already makes about two-thirds of its pretax profit.
HSBC stressed the benefits of being a global bank when it addressed investors as it unveiled first-half results on Aug. 1 in Hong Kong.
Chairman Mark Tucker said the bank had considered "alternative structures," including creating a separate Hong Kong-based, Asia-focused bank, but had rejected them. The board concluded that the cost of creating a new bank would run into billions of dollars, take up to five years and result in the loss of existing tax benefits while globally generated business would also be lost.
HSBC did not respond to requests for comment.
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