HSBC has come out fighting against calls by its largest shareholder for a break-up of the banking giant as it claimed the move would be costly and risky.
The banking giant warned that a spin-off or demerger of its Asian business could jeopardise profits and growth, with the risk of hefty one-off costs, higher taxes, big running costs and possible regulatory issues.
Group chief executive Noel Quinn instead looked to appease its activist shareholder – China’s Ping An Insurance Group – by vowing to return shareholder dividend payouts to pre-pandemic levels.
HSBC is under pressure from Ping An, which owns around 9.2% of HSBC’s shares, to spin off its burgeoning Asian arm from the UK business.
He said so-called alternative structural options would have a “material negative impact on value”.
“Our current strategy is the safest way to get to the highest returns and dividends we all want to see.”
He also stressed that its “internationalism remains the most defining characteristic of our identity”.
“Serving customers across borders is what we do best. It is how we can best help them to grow, and, we believe, the fastest way to accelerate returns for our shareholders,” he said.
The comments came as HSBC reported a 15%, or 1.7 billion US dollar (£1.4 billion), drop in first-half pre-tax profits to 9.2 billion US dollars (£7.5 billion) as it joined rivals in setting aside cash to cover potential loan losses, booking a 1.1 billion US dollar (£902 million) charge.
It said this partly reflected “heightened economic uncertainty and inflation” as soaring cost pressures hit the UK and wider global economy, while it cautioned that impairment charges are set to rise over the second half.
But the profit out-turn for the second quarter was better than expected and the group promised it will revert to paying quarterly dividends next year, helping shares lift 7%.
Mr Quinn said: “We understand and appreciate the importance of dividends to all of our shareholders.
“We will aim to restore the dividend to pre-Covid-19 levels as soon as possible.
“We also intend to revert to quarterly dividends in 2023.”
Dividends at HSBC were one of the key reasons why Ping An has been pushing for a break-up, after the Bank of England slapped a ban on UK lenders paying out dividends during the early stages of the pandemic to ensure the sector was resilient.
This clampdown was lifted in July last year, but Ping An has argued that Asian investors felt cheated out of their dividend.
While HSBC is based in London and has a large presence in the UK market, it makes most of its profits in Asia.
The bank’s board will meet with retail investors in Hong Kong on Tuesday in what promises to be a tense gathering.
A Hong Kong politician, Christine Fong, has also backed the calls for HSBC’s Asian business to be spun off and wants representatives of Ping An to be appointed to the bank’s board.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said HSBC’s credit charges had “more than undone the helping hand from rising interest rates on the bottom line”.
“This gives activist shareholders even more clout to pressure the business to find new, potentially radical, ways to propel growth,” she said.