Bank dividends may return as UK barters deal

Business | Kevin Xu 27 Oct 2020

British regulators are reported to be mulling over plans to allow banks to resume dividends next year - just before HSBC (0005) releases the third-quarter results today - but analysts do not suggest investors jump in to buy bank stocks as the news comes as no surprise.

The Bank of England and commercial banks are "bartering" a deal that would allow banks to make shareholder payouts if their loss-absorbing capital buffers are strong and they continue to extend credit to the real economy, The Times said.

But the news was not a surprise to banks but only a reconfirmation that they may distribute dividends from 2021, said Kenny Wen Kit, wealth management strategist of Everbright Sun Hung Kai.

Earlier this year, Britain's major banks agreed to ax dividend payments and suspend share buybacks for the rest of the year at the request of the Bank of England.

The central bank said in July that its Prudential Regulation Authority would undertake in the fourth quarter the assessment of firms' distribution plans beyond the end of 2020.

"They just keep on the original schedule. In this way, I don't think this is fairly positive news for the banks," Wen said.

HSBC will release the third-quarter results in an announcement today.

Goldman Sachs expects HSBC's net income will reach US$869 million (HK$6.73 billion) in the third quarter, up 3.5 times quarter-on-quarter but down 71 percent year-on-year, and the bank's third quarter profit before tax will likely hit US$2.419 billion, up 1.2 times quarter-on-quarter but down 50 percent year-on-year.

"Geopolitical risk and uncertainty about dividend resumption are two key drags on HSBC's share performance," J.P. Morgan analysts said in a report.

"HSBC's share price tumbled to a 25-year trough in September and then subsequently recovered when Ping An Asset Management raised its stake in HSBC. Market expectations of HSBC shrinking under-performing business in America and Europe is another positive driver on share performance. However, upside is limited as we do not expect HSBC to materially scale down its US business, which contributed around 30 percent of the group's US dollar deposits."

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