HSBC jumps 6pc as dividend hopes rise

Business | Bloomberg and Avery Chen 26 Nov 2020

HSBC (0005) shares surged as much as 8 percent in Hong Kong trading yesterday on optimism Europe's biggest lender may soon resume paying dividends as a turnaround gathers speed.

The shares ended 6.5 percent higher at HK$42.35 in Hong Kong yesterday, making it the best performer in the benchmark Hang Seng Index. They have still declined 30 percent so far this year.

That came after Yves Mersch, vice-chair of the European Central Bank's supervisory board, said in an interview with the Financial Times that Eurozone banks may be allowed to restart dividend payments next year if their balance sheets are strong enough to survive from the Covid-19 pandemic.

Mersch said in the interview that it would be difficult to maintain the dividend ban next year. But the 71-year-old Luxembourger, who will retire from the ECB executive board next month, warned some banks were using "very rosy scenarios" in their internal models to determine capital needs.

"[The rise in HSBC's shares] is mainly due to the change in market expectation, as HSBC's operating conditions aren't as bad as expected previously," said Richard Cao, analyst at Guotai Junan International. "Its valuation is also attractive so a catch-up rally is possible."

Goldman Sachs on Tuesday advised investors to buy the London-based lender, which beat analyst expectations in the third quarter and signaled it may resume limited dividend payments for this year. British regulators have signaled a willingness to soften their stance on payouts, people familiar have said.

The shares are up about 50 percent from a 25-year low at the end of September.

Continued outperformance would depend on earnings upgrades driven by an improving economic environment, better cost management as well as asset disposals, Goldman analysts led by Hong Kong-based Gurpreet Singh Sahi wrote in a November 24 report.

JPMorgan said in a note on Monday that Joe Biden's victory in the U.S. election eases "geopolitical tail risk" for the lender.

HSBC's shares have also been rising since its biggest shareholder, Ping An Insurance (2318), raised its stake in the lender.

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