HSBC resumes dividend as profits drop by a third

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·4 min read
HSBC billboard in London. Photo: May James/SOPA/LightRocket via Getty
HSBC billboard in London. Photo: May James/SOPA/LightRocket via Getty

HSBC (HSBA.L) has reinstated its dividend and accelerated changes to its business, after annual profits slumped by a third.

The bank reported pre-tax profits of $8.8bn (£6.25bn) on income of $50.4bn in 2020. Analysts had been expecting profits of $8.3bn on income of $50bn.

Profits were down 34% on 2019. HSBC was hit by a big jump in credit loss provisions as a result of the COVID-19 pandemic. The bank set aside another $1.2bn In the fourth quarter of 2020 to cover an expected jump in bad loans. It took total loss provisions for the year to $8.8bn.

"I am proud of everything our people achieved and grateful for the loyalty of our customers during a very turbulent year," chief executive Noel Quinn said in a statement.

HSBC announced a final dividend of 15p, well above City forecasts of 10.1p. The resumption of payouts follows the Bank of England's decision to lift its dividend ban in December.

The bank announced plans to accelerate and deepen its ongoing transformation plans. HSBC is in the middle of a root-and-branch restructure meant to reverse years of underperformance. Last February the bank announced plans to axe 35,000 jobs and cut cost by $4.5bn (£3.4bn) by 2022. It marked the bank's third major restructure in a decade.

On Tuesday, HSBC said it would "increase our focus on areas where we are strongest, increase and accelerate our investments, and continue to progress with the transformation of our underperforming businesses."

The bank said it would continue to pivot to Asia and focus on fee based parts of its business, such as wealth management. HSBC plans to move more staff and assets from Europe and the US to Asia as part of the plan.

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"The growth plans we are announcing today aim to establish HSBC as a dynamic, efficient and agile global bank with a digital-first mindset, capable of providing a world-leading service to our customers and strong returns for our investors," Quinn said. "We intend to deliver them at pace.”

"This marks a key turning point for the business, a hunkering down into the Asia region which is the main driver for growth," said Susannah Streeter, a senior investment and market analyst at Hargreaves Lansdown.

Joseph Dickerson and Aqil Taiyeb, bank analysts at Jefferies, said the update was "a bit dull" and said HSBC was "searching for narrative."

Shares initially fell in London before recovering to trade broadly flat.

HSBC was broadly flat in London shortly after the open. Photo: Yahoo Finance UK
HSBC was broadly flat in London shortly after the open. Photo: Yahoo Finance UK

HSBC's pivot to Asia could prove challenging. Europe's largest bank has faced increased political pressure over the last year due to its dual role in both the UK and Hong Kong. Growing tension between China and the West has made HSBC's position increasingly uncomfortable.

Politicians in the US and UK have criticised HSBC for suspending the bank accounts of pro-democracy protestors in Hong Kong. At the same time, Chinese state media has criticised HSBC's role in the detention of top Huawei executive Meng Wanzhou in Canada.

The Financial Times reported this week that several top HSBC executives are poised to relocate to Asia as part of a broader pivot towards the region.

On Monday, HSBC had announced a reshuffle of its top executives ahead of the annual results. Nuno Matos, formerly head of HSBC's UK ring-fenced bank, was confirmed as CEO of wealth and personal banking after former boss Charlie Nunn was poached by Lloyds (LLOY.L) last year. HSBC's chief compliance officer Colin Bell was promoted to run the ring fenced bank.

HSBC USA chief executive Michael Roberts was promoted to an expanded role overseeing business across the US, Canada, and Latin America. Stephen Moss, Quinn's chief of staff and head of strategy, was moved to a role overseeing the Middle East and North Africa.

Chief finance officer Ewan Stevenson was put in charge of the bank's restructure and given responsibility of M&A.

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