Ping An seeks to split with HSBC, but it is refused because it would be expensive

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HSBC (LON: HSBA) rejected a request by the institution’s largest shareholder Ping An Insurance Group Co of China (601318.SS) to split the lender, claiming that such a move would be expensive. At the same time, the bank reported earnings that above forecasts and pledged to increase dividend payments.

The London-based HSBC increased its objective for return on tangible equity on Monday from a previously stated minimum of 10% to at least 12% starting in 2019. It stated that beginning in 2023, it plans to resume paying dividends on a quarterly basis.

HSBC was the top performer in the benchmark FTSE 100 index on Monday morning as its shares increased by about 7%. (INDEXFTSE: UKX).

“We recognise and respect the significance of dividends to each and every one of our shareholders. As quickly as feasible, we’ll work to return the dividend to its pre-COVID-19 levels “Noel Quinn, the bank’s chief executive, who has been in charge for more than two years, stated this in the results announcement.

Since the firm cancelled its dividend payment in 2020, HSBC investors, particularly its small shareholders in Hong Kong, have been paying close attention to dividends.

Some Hong Kong investors have backed Ping An’s suggestion that HSBC consider strategic alternatives including selling off its core Asian division to increase shareholder value.

As HSBC is ready to meet with Hong Kong shareholders on Tuesday, a politician from Hong Kong even requested the firm to put Ping An officials to its board.

The bank said a demerger or spinoff of its Asian division would entail enormous one-time execution costs, higher taxes, ongoing operating expenses for the bank, and potential regulatory setbacks in its most forthright response to calls for the breakup to date.

In an apparent response to the Chinese insurer, the bank said it is speeding up the reorganisation of its U.S. and European operations and would continue to depend on its worldwide network to produce profitability. The bank did not specifically address Ping An’s proposal for separating the bank.

“Our wholesale clients primarily prefer to bank with us due to our strength as a globally linked institution, and we are committed to take advantage of the benefits our network provides us, said Quinn in an earnings statement.

Dual-listed According to Quinn, HSBC has discussed the results of an external investigation of the viability of its plan with its board but won’t make them public.

For the six months ended June 30, HSBC reported a pretax profit of $9.2 billion, down from $10.84 billion a year earlier but exceeding the $8.15 billion average expert expectation the bank had gathered.

The updated forecast and outcomes, according to Quinn, who is in charge of HSBC’s massive investments into Asia to spur development, validate the bank’s strategy.

Asia’s profit share increased from 64 percent to 69 percent in the first half from last year.

He told Reuters on Monday, “Look at the half-year results, and you’ll see the worth of the existing approach.”

Ping An holds about 8.3% of HSBC’s stock but hasn’t verified it or made any public remarks about the plan. Ping An’s representative declined to comment on the performance and business plan of HSBC.

HSBC said that it will distribute a 9 cent interim dividend per share. It said that stock buybacks are still improbable this year.

It disclosed a $1.1 billion charge for anticipated credit losses as more of its debtors struggled as a result of increased economic uncertainty and increasing prices.

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