HSBC dividend hopes rekindled: Shares rallied 6 per cent on upbeat noises from management that it intends to start paying dividends again despite profits falling by a third as lower interest rates bit. In its Q3 statement today the bank said the board will consider whether to pay a “conservative” dividend for 2020. It will depend on regulators – we noted yesterday that shares in UK banks were slow to respond to reports the Bank of England is talking to commercial banks about restarting divis. The prospect of dividends coming back will interest income investors again and with returns cut all over the place, anything that offers yield will be snapped up.
The bank reported profit before tax was down 36 per cent to $3.1bn, mainly from lower revenue, which declined 11 per cent to $11.9bn. Asia was the sole source of positive income as it reported profit before tax of $3.2bn in the third quarter, despite interest rate headwinds. It underlines the fact HSBC’s exposure and reliance on Greater China has been a positive this year in the wake of the pandemic and the economic recovery in that region being swifter than in Europe/US. Cuts to interest rates by central banks left net interest margin at 1.20 per cent, which was down 36 basis points from Q3 2019. Expected credit losses and other credit impairment charges were down $100m to $785m thanks to a steadier outlook for the economy. Loan losses for the full year are seen around the lower end of the $8bn-$13bn range. Whilst banks are now setting aside less for bad loans than they did at the height of the pandemic in the spring, it’s unclear whether fiscal support is only kicking this particular can down the road.
Management warned specifically about ongoing US-China trade tensions and the uncertainty over the UK withdrawal from the EU. They also warned that the low interest rate environment continues to put pressure on net interest income and will exert further headwinds through the fourth quarter before they are seen stabilising in 2021.