London-based HSBC’s comments on Monday represent its most direct defense since news of Ping An’s proposal to spin off the lender’s Asian operations broke in April. It comes ahead of HSBC’s meeting with shareholders in Hong Kong on Tuesday, where the Chinese insurer’s proposal will be discussed. And in moves that pleased investors, HSBC raised its target for return on tangible equity, a key performance measure, to at least 12% from next year from a minimum of 10% previously flagged. It also promised to return to paying quarterly dividends from early 2023. Sign up now for FREE unlimited access to Reuters.com Register Shares in HSBC rose 6% in early London on Monday, the highest since late June. “We have sympathy for Ping An and all our shareholders that our performance has not been where it should be over the last 10 years,” chief executive Noel Quinn, who has led the bank for more than two years, told analysts. Asia is HSBC’s biggest profit center, with the region’s share of the lender’s profits rising to 69% in the first half from 64% a year ago. Without directly naming Ping An in its earnings presentation earlier on Monday, HSBC said a breakup would mean a potential long-term hit to the bank’s credit rating, tax bills and operating costs, and would bring immediate risks to the execution of any spin-off or merger. “There would be a significant execution risk over a period of three to five years when all customers, employees and shareholders would be distracted,” Quinn said on the call, regarding the breakup proposal. Some investors in Hong Kong, HSBC’s biggest market, backed Ping An’s proposal. They are upset after the lender canceled their payment in 2020. Read more Quinn said HSBC would aim to restore its dividend to pre-Covid-19 levels as soon as possible. Discussions with Ping An were purely commercial, the CEO said, responding to a reporter’s question about whether the policy was affecting the Chinese investor’s call for the bank to be broken up. HSBC has shared with its board the findings of a review by outside consultants on the validity of its strategy, but will not publish them externally, Quinn told Reuters. He said HSBC published detailed information on its international connectivity and revenue for all its shareholders to understand the value of the franchise and its strategies. Ping An, which has not confirmed or publicly commented on the break-up proposal, owns about 8.3% of HSBC’s shares. A Ping A spokesman declined to comment on HSBC’s results and strategy.
PROFIT USAGE
Last week, Europe’s lenders delivered some positive earnings surprises. read more Dual-listed HSBC followed suit, posting pre-tax profit of $9.2 billion for the six months ended June 30, up from $10.84 billion a year earlier, but beating analysts’ average estimate of $8.15 billion dollars drawn up by the bank. Quinn, under whose leadership HSBC has plowed billions into Asia to drive growth, said the upgraded profitability guidance represented the bank’s best performance in a decade and validated its international strategy. Instead of breaking up, HSBC will focus on accelerating the restructuring of its US and European businesses and rely on its global network to boost profits, the lender said. Analysts at Citi said the new guidance implies upside earnings for HSBC. “This quarter’s pace could lead to high single-digit consolidated earnings before tax upgrades,” they said in a report. https://bit.ly/3BwBEXV HSBC pays an interim dividend of 9 US cents per share. He also said equity markets remain unlikely this year. It reported a $1.1 billion charge for expected credit losses as heightened economic uncertainty and rising inflation put more of its borrowers in trouble. Sign up now for FREE unlimited access to Reuters.com Register Report by Anshuman Daga and Lawrence White. Edited by Muralikumar Anantharaman Our Standards: The Thomson Reuters Trust Principles.
