News: HSBC curbs profit and payout ambitions, bets on Asia wealth.
HONG KONG / LONDON (Reuters) – HSBC Holdings PLC on Tuesday abandoned its long-term profitability target and unveiled a revamped strategy that primarily focuses on asset management in Asia after the COVID-19 shock caused annual earnings to decline sharply.
In view of the low interest rate environment and difficult market conditions, HSBC has discarded its goal of achieving a return on tangible equity of 10 to 12% and instead aimed for 10% in the medium term.
The moves of Europe’s largest bank underscored the difficult outlook for the banking sector as low interest rates around the world take their toll, even as a rally in global markets added to the prospects for the wealth management business.
Margin pressure and mounting losses in Europe have forced HSBC to increasingly focus on Asia, which had a dominant share of the bank’s profits in 2020.
“The big structural change that has taken place since the plan was drawn up last February has been the shift in interest rates to zero in most of the markets in which we do business,” said Ewen Stevenson, HSBC’s group financial officer Reuters.
“If interest rates were 100 basis points higher across the board today, it would improve our return by 3 percentage points.”
The bank announced it would pay a dividend of $ 0.15 per share in cash. This was the first payout announced since October 2019 after the Bank of England banned all major lenders from paying dividends or buying back shares in 2020 to save capital.
However, it said it would end the previous practice of paying a quarterly dividend and aim for a payout ratio of between 40% and 55% of reported earnings per common share from 2022, well below the level of recent years.
(Graphic: HSBC lowers dividend ambitions,)
HSBC also announced that it will significantly cut some of its back office functions, such as technology and operations, without disclosing the number of jobs affected. The lender cut 11,000 jobs in 2020 and has signaled that it will cut more jobs.
The announcement came when HSBC reported pre-tax earnings of $ 8.78 billion for 2020, a 34% year-over-year decrease but just above the average of the bank’s analyst estimates of $ 8.33 billion Dollar lies.
HSBC’s Hong Kong stocks rose 0.55% to 0750 GMT, trailing the benchmark Hang Seng index as investors took into account the dividend cut and the bank’s modest strategic ambitions.
Investors were pleased with HSBC’s more modest ambitions and growth target.
“It is difficult to have high ambitions in this climate, or at least dangerous to declare them when they exist,” said Hugh Young, managing director of Aberdeen Standard, the bank’s ninth largest shareholder.
ASIA FOCUS, SCREAMING ELSEWHERE
HSBC said its growth in Asia for the next five years will be driven by approximately $ 6 billion in additional investments in asset management and international wholesale business.
“Everyone is realizing the great economic opportunity for China and India, but HSBC is beginning to realize that no one has the ability to serve this wealth creation as they do,” said Dan Lane, senior analyst at UK digital broker Freetrade.
“The view isn’t cheap, but it looks like the company is finally ready to invest money to bring even more East Asian customers on board.”
Profits from the bank’s wealth management and private banking division in Asia totaled $ 5 billion in 2020, but the Hong Kong cash cow made up almost everything, despite the controversial decision to assist the Hong Kong police in investigating pro-democracy activists.
Elsewhere in the world, HSBC is currently in talks with a potential buyer for its troubled retail unit in France, which has been trying to sell for over a year, but no deal has been confirmed.
The sale was expected to suffer a loss given the company’s underlying performance.
The bank also said it is reviewing “organic and inorganic options” for its US retail business, suggesting it is trying to sell the unit where it closed 80 branches last year.
Reuters and others have reported that the bank is trying to pull out of US retail banking.
HSBC’s Mexican business posted a loss of $ 187 million in 2020 as many of its stores remained closed due to the pandemic. CEO Noel Quinn told Reuters that he was confident about the prospects for a deal the bank had considered selling in the past.
“We are confident that (HSBC’s Mexico business) will be successful again after COVID, and it is a large-scale business,” Quinn said.
Reporting by Alun John and Lawrence White; Editing by Shri Navaratnam
Original Source © Reuters