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.

Shareholders in Hong Kong are angry with HSBC © iStockphoto

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.

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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”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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