LONDON (BLOOMBERG) – HSBC Holdings delivered better-than-estimated profits and pledged to return to paying quarterly dividends next year as it seeks to head off a call by its largest shareholder to split up. 

Helped by rising interest rates and a jump in income from currency trading, adjusted pre-tax profits rose 13 per cent to US$5.97 billion (S$8.24 billion) in the second quarter, according to a statement from the London-based bank. The bank was expected to post a profit of US$4.96 billion in a survey of Bloomberg analysts.

“The progress that we have made growing and transforming HSBC means we are in a strong position as we enter the current rates cycle,” chief executive officer Noel Quinn said in a statement. “We are confident of achieving a return on tangible equity of at least 12 per cent from 2023 onwards, which would represent our best returns in a decade.” 

This is a 2-percentage point jump from its guidance in April, when the bank said it was targeting a return of “at least 10 per cent in 2023”.

HSBC said it will seek to restore its quarterly dividend by next year, a key move to satisfy demands from its Hong Kong investor retail base. In April, it emerged that HSBC’s biggest individual shareholder, China’s Ping An Insurance Group, was pressing the bank to carve out its Asian unit as a stand-alone business. Ping An has argued that the move would provide investors with a purer investment in the region’s growth.

HSBC’s shares were up 5.86 per cent at 8.50am in London (3.50pm Singapore time).

Ping An has yet to make any public comment and instead has preferred to operate a behind-the-scenes campaign aimed at amping up pressure on HSBC to revise its strategy. HSBC has hired advisers from investment banks Goldman Sachs and Robey Warshaw to do a review of its business to rebut Ping An’s call.

In an interview with Bloomberg Television on Monday (Aug 1), HSBC chief financial officer Ewen Stevenson said it is hard to find value for shareholders in a potential split.

HSBC intends to revert to paying quarterly dividends in 2023, though it said this is expected to initially be reinstated at a lower level than the historical quarterly dividend of 10 US cents a share paid up to the end of 2019. The lender said its revenue outlook “remains positive”, and it expected costs to rise about 2 per cent in 2023.

HSBC is in the midst of its own turnaround, which is focused on building up its position in Asia, particularly in wealth management, while culling operations no longer deemed relevant. The bank has already sold off units in the United States, France and Greece, and recently said it would be selling its remaining operations in Russia.

Job cuts

Fresh job cuts could be on the cards at the bank. Mr Stevenson said rising inflation meant “very material action” was needed to keep a lid on expenses and that automation would most likely lead to reductions.

“Inevitably over time, as the pace of digitisation and automation increases, we will see fewer staff,” Mr Stevenson said in a phone interview on Monday with Bloomberg News.

HSBC said operating expenses were stable in the quarter and all regions were profitable in the first half. It booked expected credit losses of US$1.1 billion in the first half, citing “heightened economic uncertainty and inflation”. Its common equity tier-one ratio, a sign of financial strength, was 13.6 per cent, decreasing by 2.2 percentage points from six months ago.

Top of HSBC’s concerns for credit losses is the downturn in the Chinese property sector, which has already cost the bank hundreds of millions in charges against potential defaults among borrowers. It took US$142 million of expected credit losses related to China’s commercial real estate sector in the second quarter, adding to the US$160 million charge set aside in the first quarter.

“We do think we are going to see some further impairments in the second half in that portfolio,” Mr Stevenson said in his Bloomberg Television interview.