HSBC tells investors to reject proposals by unhappy minority shareholders on dividends, restructuring

Minority shareholder group has called for the bank to increase dividend payments, consider radical restructuring
Shareholder resolutions follow Ping An’s campaign pressuring HSBC to spin off its Asian business

HSBC’s directors have recommended that investors vote against proposals by a group of frustrated minority shareholders to increase its dividend payouts and consider radical structural restructuring to enhance the bank’s value, such as spinning off its Asian operations.

The proposals, submitted by Ken Lui Yu-kin, the leader of the “Spin Off HSBC Asia Concern Group”, earlier this month, are among 18 resolutions to be voted on at the bank’s May 5 annual general meeting in Birmingham, England.

“A meaningful restructuring or spin-o-ff of our Asia businesses would present material complexity, have high execution risks, take many years, and be very costly,” HSBC said in a Hong Kong stock exchange filing. “The restructuring or spin-o-ff would create a period of uncertainty when clients, employees, and shareholders would all be distracted and impacted.”

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The shareholder resolutions call for the bank to restore its annual dividend to a pre-pandemic level of at least 51 US cents a share and consider structural reforms “with a view to maximising HSBC’s value, ensuring sustainable growth and protecting the interests of its shareholders in the long run”, including separating its Asian and Western operations.

The London-based bank generates the bulk of its pre-tax profit in Asia.

The proposals come on the back of Ping An Insurance Group, HSBC’s largest shareholder, calling for the bank to spin off its Asian operations last year and ongoing frustration in the bank’s Hong Kong shareholder base over the cancellation of its final dividend for 2019 and suspension of its dividend in 2020 at the request of its chief regulator in Britain.

The Prudential Regulation Authority, an arm of the Bank of England, asked Britain’s biggest lenders, including HSBC and Standard Chartered, three years ago to suspend payments to investors and not pay cash bonuses to senior staff to ensure they had enough capital on hand to support the economy during the coronavirus pandemic.

HSBC resumed paying dividends in 2021 and made its biggest payout in four years with an annual dividend of 32 US cents a share for 2022.

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As part of its annual results announcement in February, HSBC said it would establish a dividend payout ratio of 50 per cent for 2023 and 2024, excluding “material significant items”, and consider future share buy-backs.

The bank also said it would return to paying quarterly dividends in the first quarter and consider a special dividend of 21 US cents a share following the completion of the sale of its Canadian business to Royal Bank of Canada in late 2023.

HSBC said its board believes the dividend proposal by the shareholder group is “unnecessary and risks complication and confusion”, adding its current dividend strategy should return investor payouts to “pre-Covid levels as soon as possible”.

Another sticking point for HSBC shareholders in Asia is the bank has found itself regularly caught in political firestorms in recent years between Beijing and Western governments.

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Noel Quinn, HSBC’s chief executive, speaks during the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Central in November. Photo: Sam Tsang

As part of an unorthodox campaign to spur changes at the bank, Ping An has called for the bank’s management to “adopt an open attitude” to suggestions to improve its performance and arguing that a separation of the business could open substantial shareholder value.

The bank’s management has argued that it generates much of its business through its international network connecting capital between East and West and would require creating an entirely separate information technology network for the spun off business at great expense. The bank operates in 63 countries and territories worldwide.

HSBC also has been reshaping itself under Noel Quinn, who became CEO in 2019.

In addition to the sale of the Canadian business, the bank is selling its French retail banking business to a unit of private equity giant Cerberus, agreed in July to offload its Russian operations to Expobank and exited its mass-market retail business in the US in 2021.

Last week, HSBC agreed to rescue the British arm of the collapsed Silicon Valley Bank, acquiring the business for a nominal fee of GBP1 (US$1.22). The deal is expected to boost its standing with high-growth technology and life sciences companies in Britain.