Hong Kong investors threaten legal action as UK banks drop their dividends

Regulators have insisted that British banks scrap their dividend payouts. HSBC’s shareholders are particularly cross.

Retail investors in Hong Kong have threatened legal action against HSBC after UK regulators persuaded it to cancel its dividend, says the Financial Times. HSBC was one of five UK-based lenders that last week “bowed to pressure” from the UK’s Prudential Regulation Authority (PRA) to withhold its annual payments to shareholders. However, although the bank is headquartered in London, a third of its shares are owned by individual investors in Hong Kong, many of whom rely on the bank’s dividends for income. The decision has “reignited the debate”over whether HSBC’s headquarters should move to Asia.

You can see why HSBC’s shareholders and executives are cross, says Alec Macfarlane on Breakingviews. But not only does the agitation “lack class”, it is also short-sighted given that HSBC is also the “biggest provider of credit cards and mortgages” in Hong Kong and a “big lender” to small businesses, many of which are “under strain” thanks to the crisis. In any case, not only is the law very clear that HSBC can withdraw payouts “as and when it pleases”, but it’s also clear that “flying in the face” of HSBC’s regulators would harm shareholders even more.

Political showboating?

HSBC’s shareholders are not the only ones to feel angry, as the ban on dividends has been a “blow” to other banks’ shareholders too, says The Times. They “range from pension funds to private investors”. In the day after the move was announced, Standard Chartered’s share were off by 7.%, Barclays slid 12%, while Lloyds fell by 11.7% and RBS by 5.2%. The matter is also complicated by the fact that while investors have now been deprived of their final dividends for the lenders’ performance in 2019, top bankers “will already have been paid some of their cash bonuses”, which will be “difficult” to claw back.

Banning bank dividends will hurt many of the “same savers and pension funds whose income has been ravaged by coronavirus”, says Ben Marlow in The Daily Telegraph. What’s more, the fact that even the PRA admits that current capital buffers are “more than sufficient” to cope with the impact of “severe global recessions” and market shocks means that the ban smacks of “political showboating”. Nevertheless, the huge amount of uncertainty about the impact and length of the crisis means that halting dividends “is absolutely the prudent thing to do”. It will also give banks additional capital to lend to the small and medium-sized firms that are the “beating heart” of the economy.

Shareholders on the other side of the Atlantic may soon be in the same boat. JPMorgan’s CEO Jamie Dimon says Wall Street’s largest bank may have to suspend its dividend, says Rob Davies in The Guardian. Dimon expects that even in the best case scenario, financial institutions will have to deal with the effects of a nasty downturn creating “financial pressures reminiscent of the banking crash more than a decade ago”. 

Recommended

The MoneyWeek portfolio of investment trusts – March 2023 update
Investment trust model portfolio

The MoneyWeek portfolio of investment trusts – March 2023 update

A decade ago we set up the MoneyWeek portfolio of investment trusts. It proved a success, says Andrew Van Sickle.
27 Mar 2023
Energy prices expected to fall in July - should you switch to a fixed energy tariff?
Energy

Energy prices expected to fall in July - should you switch to a fixed energy tariff?

Fixed energy deals are starting to make a comeback, with one major provider already offering it to existing customers - we look at how much they may c…
27 Mar 2023
State pension errors – women with husbands aged over 80 could be underpaid
State pensions

State pension errors – women with husbands aged over 80 could be underpaid

Some married women could be missing out on their full state pension, but the DWP has no plans to contact them directly. We explain how you can check i…
27 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023
Share tips of the week – 24 March
Investments

Share tips of the week – 24 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
24 Mar 2023