HSBC to speed up cost cuts and resume paying dividends as last year's profit decline beats market forecasts




  • In Business
  • 2021-02-23 09:30:00Z
  • By South China Morning Post

HSBC, the biggest of Hong Kong's three currency-issuing banks, said it would resume paying dividends to shareholders after a fourth-quarter net profit helped it report a smaller-than-forecast decline in 2020 earnings.

The London-based bank, which generates much of its revenue in Asia, also said it would resume paying dividends after posting a fourth-quarter net profit, swinging from a loss a year earlier. It had cancelled its final 2019 payment and suspended an interim payout last year at the request of its chief regulator in the United Kingdom, raising the ire of retail investors, many of whom are in Hong Kong.

On Tuesday, HSBC said it would aim to be a market leader for high net worth and ultra-high net worth clients in Asia and seek to capture more trade flows into and across Asia as part of an update on its strategy. That includes an investment of US$6 billion in Asia over the next five years and increased efforts to further digitise its operations.

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The lender, Europe's biggest by assets, also said it would aim to keep its annual costs below US$31 billion by 2022. Last year, the lender announced plans to cut annual costs by US$4.5 billion and slash 35,000 jobs by 2022.

"The growth plans we are announcing today aim to establish HSBC as a dynamic, efficient and agile global bank with a digital-first mindset, capable of providing a world-leading service to our customers and strong returns for our investors," HSBC CEO Noel Quinn said in a stock exchange filing. "We intend to deliver them at pace."

For the full year, HSBC reported a pre-tax profit of US$8.8 billion, beating the consensus estimate of US$8.3 billion by analysts polled by the bank. That was a 33.8 per cent decline from the pre-tax profit of US$13.3 billion a year earlier. The bank's net profit fell to US$3.89 billion, from US$5.97 billion a year ago. The bank earned a net profit of US$562 million in the fourth quarter, improving from the previous year's US$5.5 billion loss that had included a goodwill impairment of US$7.3 billion associated with its investment bank and commercial unit in Europe and US$400 million in restructuring charges.

HSBC is the first of Hong Kong's biggest lenders to report its 2020 results, with Standard Chartered set to issue its results on Thursday while Bank of China (Hong Kong) is expected to report its results on March 30. Bank of East Asia is expected to update investors on its results on Wednesday.

 

HSBC's head office in Central, Hong Kong on September 21, 2020. Photo: Sam Tsang alt=HSBC's head office in Central, Hong Kong on September 21, 2020. Photo: Sam Tsang

On Tuesday, HSBC said it would make a full-year dividend payout of 15 US cents a share for 2020 and look to increase that amount over time. The dividend will be payable April 29.

The lender paid out 30 US cents a share in interim dividends in 2019 before cancelling its final expected dividend of 21 US cents a share in April 2020 after a request by the Prudential Regulation Authority (PRA), an arm of the Bank of England.

The suspension of dividend payments sparked a revolt among shareholders in Hong Kong, where many older investors have relied on regular dividend payments to supplement their retirement income.

HSBC's shares fell to their lowest level in 25 years in September amid concerns about Sino-US tensions, a challenged operating environment and investor furor over the slashed dividends. The PRA said in December it was comfortable with UK-based lenders restarting investor payouts.

The bank's shares have since recovered those losses and jumped more than 7 per cent last week on investor anticipation of the dividend restart and growing optimism about the pace of the economic recovery from the coronavirus pandemic.

Shares of HSBC rose as much as 3.5 per cent ahead of Tuesday's results announcement.

Meanwhile, profit at HSBC's Hang Seng Bank unit fell 33 per cent to HK$16.7 billion (US$2.2 billion) in 2020, compared with HK$24.8 billion a year earlier. HSBC owns 62.1 per cent of Hang Seng Bank.

Hang Seng attributed the decline to lower transaction volumes by commercial and retail customers as the coronavirus pandemic weighed on investments and spending activity in Hong Kong.

Founded in Hong Kong and Shanghai in 1865, Asia has always played a major role in HSBC's business, but the bank is placing a greater emphasis on the region under Quinn, who was named the bank's CEO in March, seven months after serving in the role on an interim basis.

Bloomberg reported on Sunday that HSBC was considering moving three top executives in global banking and markets, wealth and personal banking and commercial banking businesses to the region as it shifts more capital to Asia as part of its ongoing restructuring. Those three business lines accounted for 95 per cent of its 2019 revenue.

The bank also announced on Monday that it was reshuffling the leadership of its businesses in European, the Americas and the Middle East, including naming Colin Bell, the head of the bank's transformation programme to serve as the new head of Europe.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.

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