HSBC and Standard Chartered said on Wednesday they would cancel their dividends and not launch any share buy-backs in 2020 after a financial regulator in the United Kingdom asked the country’s biggest lenders to suspend payments to investors and not pay cash bonuses to senior staff in light of the coronavirus pandemic roiling economies worldwide.
The moves sent their stocks into a tailspin. HSBC’s shares plunged 9.5 per cent to close at HK$39.95 in Hong Kong on Wednesday, the lowest point since March 2009. Meanwhile, Standard Chartered’s shares dropped 7.6 per cent to HK$39.90.
The banks, which are based in London, but generate much of their revenue in Asia, were among six lenders who said they would suspend their dividends as part of a coordinated response following a request by the Prudential Regulation Authority (PRA), a regulatory arm of the Bank of England.
“The board recognises the current and potential material impact on the global economy as a result of the coronavirus pandemic and the important role that HSBC has in helping its customers to manage through the crisis and to have resources to invest when recovery occurs,” HSBC said in a statement. “HSBC has a strong capital, funding and liquidity position; however, there are significant uncertainties in assessing the time period of the pandemic and its impact.”
The novel coronavirus, known as SARS-CoV-2, has infected more than 846,000 people worldwide and has likely sent the global economy into a recession. It has uprooted daily life across Asia, Europe and the United States, with several countries instituting lockdowns, airlines grounding much of their fleets and millions of people losing their jobs.
“The board fully recognises the importance of dividends to the group’s owners,” Standard Chartered said in a stock exchange filing on Wednesday. “However, suspending shareholder distributions at this time will allow the group to maximise its support for individuals, businesses and the communities in which it operates whilst at the same time preserving strong capital ratios and investing to transform the business for the long term.”
On Tuesday, the PRA, HSBC’s and Standard Chartered’s chief regulator, asked the biggest banks operating in the UK to suspend their dividend payments and buy-backs and said it “expects” banks not to pay cash bonuses to senior staff and material risk-takers.
The UK is following in the footsteps of European regulators who ordered lenders to suspend dividends and buy-backs last week in light of the pandemic’s effects on economies on the continent.
“We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions, but the extra headroom should help the banks support the economy through 2020,” the regulator said.
The Hong Kong Monetary Authority, which acts as the city’s de facto central bank and is the chief regulator to HSBC subsidiary Hang Seng Bank, said it did not believe that local banks in the city should be required to suspend their dividends or stop buybacks as the local banking sector has a strong capital ratio and should be able to meet lending demands. The authority will closely monitor the outbreak's effects on banks and the city’s economic situation, according to an HKMA spokesman.
HSBC, one of three lenders alongside Standard Chartered authorised to issue currency in Hong Kong, had been set to pay its final interim dividend of US$0.21 a share on April 14, but will now not make that payment.
“We truly regret the impact of this non-payment of dividend on our loyal shareholders and our customers,” Mark Tucker, the HSBC chairman, said on a conference call with journalists. “We have been asked to do this by the regulators. Their decision [was designed] to ensure there is capital for growth and allowing us to support our customers. This is an incredibly difficult decision.”
Tucker said it did not consult any of its biggest shareholders before making the decision to cancel its dividend.
The bank said it would make no dividend payments or repurchase shares until the end of this year and would review its dividend policy “once the full impact of the pandemic is better understood, and economic forecasts for global growth in future years are clearer.”
Ewen Stevenson, the HSBC chief financial officer, said the bank would not commit at this point to pay all of the dividends that had been suspended for the year, but make a decision on its dividend policy later in the year.
Standard Chartered said it would not make its final 2019 dividend payment of US$0.20 a share and suspend its US$500 million buy-back programme announced last month. The bank reports on April 29 and will update its guidance then.
HSBC said in February that it expected about US$600 million of provisions for additional loan losses if the pandemic drags into the second half of the year, but that was before conditions worsened in Europe and the US. The bank is expected to update its guidance when it reports its first-quarter results.
Banks are not the only companies suspending their dividends. Aircraft manufacturer Boeing, Olive Garden owner Darden Restaurants, carmaker Ford and hotel chain Marriott have all paused their dividends this year.
Goldman Sachs said last week that it expects dividends of S&P 500 companies in the US to be 25 per cent lower than 2019 due to suspensions, cuts and eliminations by companies this year, noting recently passed stimulus programmes in the US bar companies who seek relief from paying dividends or buying back shares until a year after they repay any government-sponsored loans.
Big companies have faced pressure to table share repurchases and suspend payments to investors in recent weeks as millions of people have found themselves out of a job as cities from London to New York have ground to a halt in order to stem the spread.
The announcement comes days after HSBC said it would delay thousands of job cuts as part of a planned overhaul announced in February because of the “extraordinary impact” of the pandemic.
The reshaping – the third major restructuring by the lender in a decade – is part of a big bet that HSBC chief executive Noel Quinn is making on future growth in Asia.
Quinn, who was permanently appointed to the top job this month, has said that the bank would shift capital from underperforming businesses in Europe and the US to growth markets, such as Hong Kong and mainland China.
HSBC said on Wednesday that its performance in the first quarter has been “resilient”, but the pandemic would likely weigh on its insurance business, cause credit and valuation funding adjustments in its investment bank and lead to higher credit loss provisions. The bank is expected to announce its first-quarter results on April 28.
“We’ve got to recognise we’re in pretty unprecedented times. There is a significant amount of economic uncertainty,” Quinn said on a conference call Wednesday.
Additional reporting by Enoch Yiu.
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