HSBC boss Noel Quinn writes letter to reassure HK shareholders after sharp three-day drop in stock price

06-Apr-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

HSBC chief executive Noel Quinn sent a letter to each of the bank’s shareholders in Hong Kong on Friday to explain the lender’s decision to cancel its dividend this week and reassure investors of its strong capital position.

The unusual step of writing directly to the bank’s shareholder base in the city came after a torrid three-day stretch that saw about $15 billion shaved off the company’s market capitalisation after the bank cancelled its final interim dividend for 2019 and said it would not pay a dividend for at least the first three quarters of the year.

HSBC was one of seven banks and building societies based in the United Kingdom that agreed to cancel their dividends early on Wednesday and not to undertake any share buy-backs this year after a request from the Prudential Regulation Authority, a regulatory arm of the Bank of England.

Calling it a “sensible precautionary step”, the watchdog asked HSBC and the other banks to take the step on Tuesday night London time to ensure they would be able to continue to support the wider economy in light of the coronavirus pandemic, which has infected more than 1 million people worldwide and probably sent the global economy into a recession.

“We profoundly regret the impact this will have on you, your families and your businesses,” Quinn said in the one-page letter, which will also be posted on the bank’s investor website. “We are acutely aware of how important the dividend is to our shareholders in Hong Kong. We deeply value your support as a shareholder and we never take that for granted.”

HSBC and Standard Chartered, two of the city’s currency-issuing banks, have had their stocks punished this week after agreeing to the regulator’s request. HSBC’s shares have fallen 14.2 per cent since Wednesday’s opening, while Standard Chartered shares have dropped 11.2 per cent.

Both banks are based in London, but generate a majority of their revenue in Asia, and they each count Hong Kong as their biggest market.

Hong Kong accounted for 55 per cent of HSBC’s pre-tax profit before certain charges last year. Customers in Hong Kong held $499.9 billion in their accounts at the end of 2019, about 35 per cent of the $1.44 trillion held by customers globally.

Dividends are particularly important to HSBC’s shareholder base in Hong Kong, with many retail investors relying on the income from dividends. About a third of the bank’s shareholders in Hong Kong are retail investors.

HSBC was set to pay a final interim dividend for 2019 of $0.21 a share on April 14.

“The action we have taken reflects the view of our lead regulator that extra prudence is needed in these unprecedented times, so that banks can help support their customers both now and over the long-term,” Quinn said in the letter.

Some of the biggest banks in the US and Europe had already agreed to suspend their dividends until at least July of this year after discussions with regulators before the PRA’s request.

The Hong Kong Monetary Authority has said it did not believe it was necessary for the city’s banks to suspend their dividends or buy-backs because the banking sector was well capitalised to meet lending demands.

Since the decision was announced in the early morning of Wednesday, shareholders and local brokers have called on HSBC to relocate its headquarters back to Hong Kong, where it was founded in 1865, rather than be subject to a regulator 6,000 miles away.

HSBC moved its headquarters to London after it completed its acquisition of Midland Bank in the UK in 1993. In 2016, HSBC decided to keep its headquarters in London after spending nearly a year considering whether to move its home base.

Mark Tucker, the HSBC chair, has said there are “no plans” to reconsider the bank’s domicile.

As he tried to reassure shareholders, Quinn repeated comments from earlier in the week, saying the bank’s performance in 2020 has been “resilient” so far and HSBC has a “strong capital and liquidity position”.

The bank has said it would review whether to restart its dividend later in the year after the economic effects of the pandemic are better understood.

The shareholder revolt marks the latest crisis Quinn who has been with the bank since 1987 has had to tackle since replacing John Flint in August. Flint was in the job just 18 months.

The bank is facing an environment of historically low interest rates, while Hong Kong’s economy has been tested first by the US-China trade war and months of anti-government street protests, and now the coronavirus pandemic.

Quinn unveiled a massive reshaping of the lender in February that was designed to reduce its annual costs by $4.5 billion, but had to temporarily pause thousands of planned job cuts last month as the economic effects of the pandemic worsened.


Category: Hong Kong

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