Banking giant HSBC issued results last week which included plenty of good news on future shareholder distributions. It is among the international banks trying to boost returns to investors as a higher interest rate environment lifts profits.
SBC’s shares have rallied since the start of the year and are up around 20pc in the year to date. This comes as the bank continues on a programme to close branches with fewer than 250 customers a week. More than 100 are to close in the current year as the company tries to keep its cost base under control.
Its fourth-quarter earnings were ahead of analyst estimates. Adjusted profits before tax were at $6.8bn (€6.4bn), up 92pc. Adjusted revenues were up 38pc, driven mainly by net interest income growth of 53pc and higher non-net interest income.
HSBC will weigh up a special payout after the sale of its Canadian unit, having announced the all-cash sale of HSBC Canada in November.
In an analyst call last week, CEO Noel Quinn said: “We expect to have substantial distribution capacity for higher dividends, more buybacks and potentially a special dividend in early 2024.”
Quinn did strike a note of caution when asked about the outlook for growth. “I think with the economic uncertainty that exists around the world at the moment, I think it is wise to be cautious on expecting too much underlying growth, particularly I think, in the demand for term lending from corporates.
“I think they’re in a cautionary mode at the moment. So that’s why we’re saying we’re not expecting in the near term significant growth, particularly in the demand for term lending. I still think there’s growth potential in working capital, finance trade.”
He said a lot would depend on global GDP, adding that is why the bank is being cautious now while “also seeing that once we get through those uncertainties, there will be growth potential beyond that”.
Quinn faced a number of questions from analysts about cost pressures, one of the biggest issues facing the bank. When asked by Andrew Coombs, from Citi, about the issue, Quinn said: “We’re not giving guidance on ’24 costs at this point in time. I think it’s too early. I think we’ve got to see where we go to on the inflation curve for the rest of the year. There’s good progress on inflation, but it’s still unpredictable.”
‘I will use some of those cost savings to mitigate some of the inflationary impacts’
In response to being pressed further by Tom Rayner, of Numis, he said: “We have programmes running that are part of business as usual through digitisation, through technology, through simplification, process re-engineering...you should expect that we will always have an element of cost savings coming through as part of continuing to drive efficiency.
“And I will use some of those cost savings to mitigate some of the inflationary impacts that exist in the environment. But I’m not going to quantify that trade-off between inflation and constant re-engineering.”
In a note after the results, Shore Capital’s Gary Greenwood said: “Our fair value currently stands at 735p (18p upside) and is based on the group achieving a through cycle RoTE (return on tangible equity) of 12pc. While there is now more limited upside to our fair value, the dividend yield remains attractive and will be further bolstered in (full year 2024) by the special dividend.”