HSBC has soothed the nerves of banking investors with a £1.9bn share buyback alongside a retreat from its promise of a forever-growing dividend.
Europe’s biggest bank, chaired by Glaswegian Douglas Flint, said slowing growth in Asia where it earns 84per cent of profit and in the UK, and still falling interest rates, meant it would relax targets for dividend growth and return on capital.
But the bank said it might launch further share buybacks, fuelled by a strong capital surplus from disposals, with its tier one ratio up from 11.9 to 12.1 per cent in the second quarter and rising to 12.6per cent after the buyback.
The sweetener helped the shares rise nearly four per cent in a market where banking stocks have recently been hammered by worries over stress-test results, the woes of some European banks notably Deutsche Bank, and economic uncertainties over the Brexit outlook.
Chief executive Stuart Gulliver said the bank had seen reduced applications for funding from small businesses in the UK following the June 23 referendum, but the impact of the vote had otherwise been “muted” so far.
HSBC’s 29 per cent fall in headline profits, which was expected by analysts, was due partly to an accounting treatment of its debt, and its adjusted profit was down 14 per cent to £10.8bn.
Hugh Young, head of equities at Aberdeen Asset Management, said the drop was “pretty much to be expected” as was the relaxation of a return on equity timetable, “given nigh on zero interest rates”. Mr Young said he believed management would continue to invest in its business plan as necessary.
But analysts at Shore Capital cautioned that both Mr Gulliver and Mr Flint were set to step down in the next couple of years, and the earnings outlook was worsening, adding that “a future dividend cut could therefore still be on the cards, especially if a new leadership takes a different view”.
Mr Gulliver said the bank had removed the word ‘progressive’ from its guidance on dividend payout plans, as a reflection of tougher market conditions.
He said the word had been “interpreted by everyone as meaning it is going to go up every quarter notwithstanding what is happening in the world”. Further buybacks could follow, Mr Gulliver said, depending on the global economic outlook.
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