HSBC refused to accept a proposal from Ping An Insurance Group of China Ltd. (601318.SS.) to split the lender. HSBC resisted the move. It was stated that it would be costly, but it would produce higher profits than expected and will promise greater dividends.
Monday’s comments by HSBC London were the bank’s direct defense since April when it was reported that Ping An had planned to separate the Asian operations. This comes just before HSBC’s Hong Kong meeting on the 2nd day with shareholders, where the Chinese insurer will be discussed.
Investors were thrilled when HSBC raised its target for return on tangible equity from 10% earlier, to at least 12%.
It cited falling costs and an increase of 4% in adjusted revenues as its main reasons for optimism. The bank also pointed out a growing interest margin as a result of rate hikes by the central bank, which improve lending returns.
It also promised to pay quarterly dividends in the first months of 2023.
HSBC shares rose almost 8% in London and traded at their highest level since June.
Asia is HSBC’s most profitable region. The lender’s profit has increased to 69% from 64%, in the previous year.
HSBC said on Monday in its presentation of earnings that a split could have a significant effect on the bank’s credit rating and tax bill. The bank also warned about immediate risks in the execution of spinoffs and mergers.
Quinn, in reference to the proposal to dissolve the company, stated that there would be a significant execution risk over a three-to-five-year period during which customers and employees would be distracted.
Investors in Hong Kong supported Ping An’s idea. Hong Kong is HSBC’s largest market. They protested when the lender stopped paying their loans in 2020.
Quinn stated that HSBC would work to get its dividends back to pre-pandemic levels as soon as possible.
Ping An stated that discussions were centered on commercial issues. Ping An said this in response to a reporter who asked if politics played a part in the Chinese investor’s desire to see the bank disintegrate.
Quinn stated that HSBC had shared the findings of an external review on the validity of the strategy with its board. Quinn didn’t say if they would publish externally.
8.3% of HSBC’s equity is owned by Ping An. Ping An has not publicly commented on the proposal or confirmed it. Ping An’s spokesmen were unable to comment on HSBC’s strategy or results.
Reuters reported last summer, citing sources who claimed that HSBC planned to accelerate its exits in non-core markets and deploy additional capital into Asia to counter Ping An’s breakup plan.
Earnings from Win
Last week, Europe’s lenders enjoyed some unexpected profits.
Russ Mould of AJ Bell Investment stated that HSBC’s Q2 results were good due to a rising interest rate and improving net margins. Low expectations and low-cost control are also factors.
The lender stated that HSBC would focus on accelerating the restructuring of its American-based and European businesses, and will depend on its global network to make profits.
Quinn stated that the capital would be used to invest in areas of strength, such as in Asia.
Citi analysts believe that HSBC’s earnings could increase due to the new guidance. They stated in a report that HSBC could beat market conditions and make a single-digit consolidated profit, without any tax upgrades.
HSBC pays an interim dividend of 9 US cents per share. According to HSBC, stock buybacks are unlikely this year.