HSBC pays dividends once more after beating estimates for 2020 earnings

HSBC building in the Canary Wharf area of ​​London, UK

Leon Neal | AFP | Getty Images

HSBC reported 2020 net income on Tuesday that exceeded expectations and announced a dividend payout for the first time since the Covid-19 pandemic.

Europe’s largest bank by asset, which has most of its revenue in Asia, announced that reported pre-tax profit for 2020 fell 34% year over year to $ 8.78 billion. This exceeded analysts’ expectations of $ 8.33 billion, according to HSBC estimates.

Reported sales were $ 50.43 billion, down 10% from 2019.

HSBC’s latest financial report was released as Hong Kong markets paused for lunch. Hong Kong-listed stocks rose 5% when trading resumed.

“The pandemic has inevitably affected our financial performance in 2020,” said Noel Quinn, HSBC’s group chief executive, in a statement on the latest earnings report for the London-based bank.

“The closure of much of the world economy in the first half of the year resulted in a sharp increase in expected credit losses, and central bank interest rate cuts reduced revenues in interest-sensitive businesses,” he added.

Other highlights of the bank’s financial report:

  • Expected credit losses rose $ 6.1 billion in 2019 to $ 8.8 billion last year as HSBC built reserves in anticipation of the impact of the pandemic on business prospects.
  • The net interest margin, a measure of the profitability of lending, was 1.32% in 2020 – less than 1.58% a year earlier as interest rates were lower around the world.
  • The core capital ratio at the end of last year was 15.9% after 14.7% in the previous year.

Changes in dividends

HSBC’s board of directors announced an interim dividend of 15 cents per share – the first payment since the third quarter of 2019.

However, Quinn said the bank is pursuing a new dividend policy to offset the supply of income to investors and invest in HSBC’s growth over the medium term.

“We will consider share buybacks over time and not in the near future if there is no immediate opportunity for a capital shift. We will also no longer offer a stock dividend option and will distribute dividends entirely in cash,” said the CEO.

The bank also said it won’t be paying quarterly dividends in 2021, but will instead consider making an interim payout for its half-year results in August. As of 2022, the bank is aiming for a payout ratio of between 40% and 55% of reported earnings per share.

HSBC halted dividend payments last year when UK regulators asked lenders to save capital.

But the Bank of England said in December UK banks could start paying some dividends again, and Barclays announced last week it would resume such payouts and embark on a £ 700 million ($ 985.4 million) share buyback .

Strategy update

HSBC also announced an update to its business strategy after several changes in leadership positions were announced on Monday.

The bank said Tuesday it will focus on Asia, as well as wealth and private banking.

It added that it intends to invest around $ 6 billion in Asia to limit some markets. The bank is currently negotiating a possible sale of its French retail businesses and is reviewing options for its US retail business.

Reuters reported Monday, citing an unnamed source, that HSBC would be leaving the US retail banking business

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