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SFC probes HSBC dividend cut after backlash

Overwhelmed by investor complaints, the Hong Kong regulator contacts UK regulators and HSBC and issues a rare public statement on the case.

HSBC is widely held by retail investors in Hong Kong, many of whom rely on the dividend as a regular source of income.

Looking at the trailing five-year period, for example, HSBC has paid a quarterly dividend that totals roughly $0.50 (HK$3.88) per share annually.

On 1 April (Hong Kong time), HSBC said it would cancel the fourth interim dividend for 2019 and suspend dividends in 2020 after a request to do so from UK regulators.

The subsequent volume of complaints from angry investors, many of whom said HSBC failed to protect shareholder interests, prompted the SFC to make inquiries with the Bank of England’s Prudential Regulation Authority (PRA) and HSBC to “establish the circumstances leading up to the cancellation and the suspension” of the dividend.

“The SFC does not usually comment on individual cases,” the regulator said in the statement, but due to the “large number of enquiries and complaints from the investing public and professional bodies in Hong Kong” it made public summarised results of the inquiry.

SFC: No grounds for action

The regulator said it raised the issues of “the overall impact on Hong Kong retail shareholders; the reliance of many Hong Kong retail shareholders on dividend distributions by HSBC as a form of regular income; and that the cancellation was made after the ex-dividend date in relation to the fourth interim dividend”.

On the first two issues, the SFC said “the PRA noted that a cessation of dividends to ensure adequate capital to support lending, in the case of HSBC, was likely to benefit the Hong Kong economy as well as the UK and the global economy”.

The third issue was the belief that HSBC shares held on the day immediately prior to the announced ex-dividend date (February 27) would be entitled to the fourth interim dividend.

The SFC didn’t directly address this matter. The statement only said HSBC received the PRA’s direct request for the cancellation at around 5:03pm London time on 31 March, (Hong Kong time 12:03 am on 01 April) and made the cancellation announcement before the market opened.

“The PRA considered the need for early action to preserve the capital position of firms in the face of continuing economic uncertainty,” the SFC said in the statement.

“Further, the PRA has the necessary statutory power to require HSBC to take capital preservation actions and it was clear that the PRA stood ready to exercise such powers should HSBC not agree to take the requested action.”

The SFC concluded that there are no grounds for regulatory action.

According to a recent report on dividends from Janus Henderson, HSBC has been among the world’s top ten dividend payers each year since at least 2013.

China Construction Bank shares the same distinction, but it has not announced a dividend cancellation or suspension.

Part of the Mark Allen Group.