HSBC CEO Noel Quinn attends the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 3, 2021. REUTERS/Yves HermanRegister now for FREE unlimited access to Reuters.comHONG KONG, Aug 1 (Reuters Breakingviews) - Sometimes a consolation prize can be as good as winning. HSBC (HSBA.L), (0005.HK) on Monday laid out the case for keeping its global network, rebuffing a breakup call from top shareholder Ping An (601318.SS). At the same time, the $125 billion bank promised higher returns and punchier dividend payouts. Rising global interest rates make those pledges easier to achieve. But if the Chinese insurer’s surprise activism has spurred HSBC to raise its game, all shareholders benefit.The Asia-focused lender predicted it would earn a return on tangible equity of at least 12% from next year, up from 10%, and expects to pay out 50% of net profit to shareholders for two years starting in 2023. Given HSBC’s cost of capital of roughly 10%, the higher return target might not sound that ambitious. However, the bank hasn’t hit that level for at least a decade.Ping An’s April call for HSBC to separate its Asian and western operations has a simplistic appeal. Carving out a business regulated in Asia resonates with small Hong Kong shareholders still furious about the decision, enforced by the Bank of England, to suspend dividends at the height of the pandemic. Supporters point to the higher valuations given to Asia-centric lenders such as Singapore-based DBS (DBSM.SI). It’s also hard for HSBC to disagree publicly with its largest shareholder, even if other big investors have so far remained silent.Register now for FREE unlimited access to Reuters.comHSBC boss Noel Quinn didn’t mention Ping An by name on Monday when he listed the risks of a split, from potentially jeopardising the bank’s licences to clear U.S. dollar transactions, to higher taxes and capital charges. He also offered more detail on the benefits of HSBC’s 63-country network: nearly half the bank’s business with wholesale clients crosses a border, for example. More data on the profitability of that activity should reinforce Quinn’s case.Ping An picked a bad moment to go public. After more than a decade of ultra-low interest rates, HSBC is benefiting from rising borrowing costs. Quinn expects the bank’s net income to hit $37 billion next year, one-sixth higher than in 2022. Including a near 6% jump on Monday morning, HSBC’s shares have gained 37% in a year, making it one of the best performing global banking titans. Yet the stock still trades at less than 90% of the bank’s tangible net asset value per share at the end of June. If Quinn hits his return target, Ping An will get the better valuation it seeks without the hassle of a breakup.Follow @JennHughes13 on TwitterCONTEXT NEWSHSBC on Aug. 1 lifted its key returns target and pledged to raise its dividend payout as it rebuffed calls to demerge or spin off its Asian business.The global bank announced first-half net profit of $9.2 billion, down $1.7 billion year-on-year due to higher bad debt charges. However, the figures were better than expected by analysts.Chief Executive Noel Quinn raised HSBC’s target for return on tangible equity to 12% from 2023, from a previous goal of 10%. He also promised to pay out 50% of the bank’s earnings as dividends, and to resume quarterly dividend payments.Chinese insurer Ping An, HSBC’s largest shareholder, in April criticised the bank and called for it to consider a breakup to better realise the value in its Asia-focused operations.HSBC’s London-listed shares were up 5.6% at 5.43 pounds by 0815 GMT on Aug. 1.Register now for FREE unlimited access to Reuters.comEditing by Peter Thal Larsen and Oliver TaslicOur Standards: The Thomson Reuters Trust Principles.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
HSBC’s cross-border ties are paying dividends.