By Chris Dorrell
The tide seemed to turn against Ping An today as HSBC recorded bumper profits and a major shareholder rejected the Chinese insurer’s spin-off campaign.
Ahead of a crunch vote at its AGM on Friday, the Asian-focused lender reported that profit more than tripled compared to the same period last year.
While this included significant one-off items, the underlying performance was still very strong, boosted by higher interest rates.
On the back of the strong profit figures, HSBC restored its quarterly dividend and announced a $2bn buyback scheme which will start following the bank’s AGM.
On a call discussing the results, chief executive Noel Quinn said “if you take one thing away from today’s results, it is a strategy that’s delivering on our promises.”
Shares in the bank were trading around 5.8 per cent higher today.
Shareholder returns have been a crucial part of Ping An’s campaign to spin-off HSBC’s Asian business, particularly after dividends were suspended during the pandemic. But the Chinese insurer’s attempts to justify a split have so far not met with much success.
Soon after the results were announced, the Norwegian sovereign wealth fund – which owns a roughly three per cent stake in HSBC – confirmed it would reject the spin-off proposals.
A series of influential shareholder advisory firms, including Glass Lewis and Institutional Shareholder Services, have also recommended that shareholders reject the plans.
Analysts suggested the payouts could help ease tensions ahead of the vote.
Philip Richards “HSBC’s greater returns to shareholders — including a planned $2 billion share-buyback program and a return to quarterly dividends — may ease some tension in the debates over its group structure.”
The extensive payouts are likely to continue. Analysts at Barclays estimated there was “the potential (for HSBC) to announce distributions worth 35 cent of market cap by 2025”.
While there were plenty of sweeteners for shareholders, there were still some residual issues which may cause concern in future.
The tripled profit included a $2.1bn reversal of impairments related to the sale of its French retail banking business.
That sale is now under threat due to higher interest rates, slowing down HSBC’s attempts to exit some of the underperforming businesses which Ping An is so concerned about.
Hargreaves Lansdown’s Matt Britzman said: “This isn’t the best news in the long run. Getting rid of underperforming businesses to increase focus on higher growth areas like Asia is key to the strategy.”
The sale of HSBC’s Canadian business meanwhile is progressing, but the bank said it now expects the transaction to complete in the first quarter of 2024 rather than the end of 2023.
The sale of the Canadian business is another part of HSBC’s withdrawal from underperforming businesses.
HSBC said the delay was to ensure there was a “smooth transition” for the bank’s customers. It confirmed it would consider the payment of a special $0.21 per share as a “priority use” of the proceeds from the sale.
Despite these issues, Ping An’s campaign is unlikely to succeed this Friday. Investors seem to regard the plan as just too risky while Quinn’s plans are a relatively safe bet.
As Quinn argued: “The fastest and safest way to get improved performance improved dividends was to execute the strategy we embarked upon just over three years ago.”
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