In an attempt to reassert its position as one of the world’s most formidable banking groups, HSBC has announced that it is to raise dividend payments to its shareholders this year in the face of disappointing financial results.
Dividends will rise by 11% over the first three interim pay-outs, following on from a 10% rise in 2012.
Fines Hit Profit Margins
The bank’s pre-tax profit fell by 6% to $20bn for 2012, a figure which, although impressive compared to some of its major competitors, takes into account the amount of money HSBC has had to pay in fines.
Its involvement in the Libor scandal and miss-selling of payment protection insurance has seen Europe’s largest bank take a hit.
US regulators alone fined HSBC £1.2bn, which forced the banking group into making cuts to its operations and workforce. The fact that they were still able to return significant profits and pay such a large amount to shareholders in dividends this year suggest that they’re still feeling bullish about their prospects for the coming years.
Show of Strength
Could the move to boost dividends, which will total £5.5bn, really send out a message to the banking sector? Josh Raymond a Chief Market Strategist for leading Forex trading firm City Index explained:
“The move is being highlighted as a show of strength and it’s exactly that. Most banks right now are looking to preserve cash in response to stricter capital requirements but the fact HSBC can return that cash to shareholders not only shows their strength but also affirms their attractiveness to long term investors”, he said.
At a time when many of its rivals are still reeling from being given fines post-Libor, increasing dividend payments might make investors flock to them instead of the likes of Barclays or Citigroup, but their immediate problem is trying to address the small yet noticeable fall in profits.
More Cuts in the Pipeline?
To try and soften the blow of the fines given by authorities in the US, UK and the European Union, HSBC underwent a cost-cutting program. It saw 38,000 employees lose their jobs, with 47 subsidiaries of the HSBC group either closed or sold in a move that would have also reduced risks.
The future might see fewer cuts, but for the time being, their shareholders could look forward to getting a greater return on their investment in the bank.