HSBA Hsbc Holdings Plc

By Elena Vardon

HSBC Holdings shareholders will gather for the bank's annual general meeting on Friday to vote on 18 resolutions, including special resolutions requested by shareholders.

The meeting comes as Chinese insurer Ping An--a majority shareholder with a stake of more than 8% in the bank and which has support of some Hong-Kong-based retail investors--has recently been vocal about reforming the lender and suggested restructuring options to enhance shareholder value. HSBC responded by saying that spinning off its Asian business would result in high costs and be value destructive.

The meeting will take place days after HSBC published first-quarter results where it reported better-than-expected profits, even after one-time gains, and said it has established a 50% dividend payout ratio for 2023 and 2024 as it is confident it will return to prepandemic dividend levels.

There is further evidence that the integrated business and capital returns that HSBC is proposing are exceptionally high numbers, said analyst Alastair Ryan of Bank of America Securities, which forecasts it to return a quarter of its market capitalization, or $34 billion, to shareholders over the next two years.

A group represented by Ken Lui Yu Kin, who leads the 'Spin Off HSBC Asia Concern Group', has proposed two resolutions which the bank has advised shareholders to vote against as it considers them not to be in the best interests of the company or shareholders.

Analysts expect both special resolutions 17 and 18 not to be voted through by shareholders as no support from institutional investors has been seen.

Here's what you need to know:

RESOLUTION 17: It proposes the creation and implementation of a quarterly strategy review of structural reforms aimed at the bank's Asia business, which would include its spinoff and strategic reorganization and restructuring.

"We do not expect shareholder proposals seeking to restructure HSBC to receive support, given the value of HSBC's connected global businesses. Improved shareholder returns also reduce the perceived need to create shareholder value through restructuring," Berenberg analyst Peter Richardson wrote in a note.

The push to isolate the Asian business to unlock further value "remains contrary to HSBC's tradition of a globally interconnected bank and one which it fully intends to continue to resist," Interactive Investor's head of markets Richard Hunter said in a note, adding that the turmoil in the sector has enabled HSBC to flex its financial muscles and reiterate its power.

The request to carve out a still integrated but separately identified entity is a very particular request and it has seen little institutional support, BofA's Ryan said.

"In my view, Ping An's objective remains the partial listing of the Hong Kong subsidiary, not to create value but to ringfence depositors against the impact of U.S. sanctions (what Ping An refers as geopolitical risk in its statement)," AlphaValue analyst David Grinsztajn said.

RESOLUTION 18: A dividend policy was proposed through which the bank would commit to distribute quarterly payouts that amount to no less than $0.51 a year, its prepandemic level.

The resolution is asking for something that the company already intends to deliver, Ryan said. HSBC is now in a position in which it can restore its distribution to its traditionally high levels on a recurring basis, he noted. With the current share buybacks, planned special dividend from the disposal of its Canadian business and the final 2023 dividend---which BofA estimates at $0.55 a share--the bank can significantly catch up on total capital distributions that were missed since the decision to cancel quarterly dividends during the pandemic, he said.

"I think that requesting management to commit to a minimum payout ratio does not make sense especially since the regulator as a final say on capital distribution," AlphaValue's Grinsztajn said.

The proposal is likely to be rejected as the bank declared its first quarterly dividend since 2019 at 1Q results and will likely to want to retain its flexibility over dividend distribution.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

May 04, 2023 12:03 ET (16:03 GMT)

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