- With dividends cancelled because of an order by British regulators, the bank – having abandoned Hong Kong in 1993 – now has few friends here even if it wants to return
HSBC chairman Mark Tucker is probably not a punk rock fan but he may find special resonance in this 1980s classic from The Clash: "Should I stay or should I go now? If I go, there will be trouble. And if I stay it will be double."
Ever since the banking giant relocated its global headquarters to London in 1993, there have been periodic talks about returning to its historical home in Hong Kong. Last time, the rumours were triggered by the turmoil of Brexit. This time, it is the shock decision to cancel dividend payments, possibly until the fourth quarter this year, after being told to do so by British regulators. This has surprised and outraged investors in equal measure, especially its legions of faithful retail shareholders in the city, many of whom depend on the quarterly payments for income.
The decision promptly sent its shares down by 14 per cent last week, wiping out HK$123 billion in market capitalisation. Fellow British bank and Hong Kong note issuer Standard Chartered suffered similarly on being instructed to do the same by the British Prudential Regulation Authority " a regulator far away from the banks' biggest market in Hong Kong.
The shock is understandable. HSBC has faithfully paid investors continuously since 1946, a proud tradition that has also been one of its main attractions to local conservative retail investors despite its lacklustre stock performance over the past decade.
The bank makes most of its profits in Hong Kong and the rest of Asia, and is pivoting its business on China's growth. Unsurprisingly, many investors and reportedly even some bank insiders have raised the issue of homecoming again.
HSBC is well capitalised and could well have paid the dividends. But British authorities prefer to push banks to keep their capital during the coronavirus pandemic and economic downturns so as to lend to small businesses and homeowners, as well as waiving banking fees to low-income customers. Hurting investors and shareholders far away was not a significant consideration.
This is a pity, as it exposes again the city's financial vulnerabilities. Not only have we outsourced our monetary policy to the United States Federal Reserve with the US dollar peg, even dividend payments by some of the world's largest banks are now decided in faraway London; so much for being a former Crown colony.
HSBC last week said there were "no discussions" to reopen the issue of its domicile. But it is hard to think it is not on many people's minds. With Brexit and the pandemic, there are obvious advantages to have been based in Hong Kong. But then, HSBC may no longer be so welcomed as it once was by the authorities in Hong Kong or Beijing.
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