HSBC’s 130 Billion Valley Growth Fanning: Asian Priority

After years of reorganization and weight reduction, the new management of HSBC (00005) delivered its first strategic goal yesterday and proposed to invest up to $17 billion (approximately HK$132.6 billion) in the three years to grow and invest in technology.

Executive Chief Executive Fan Ning said in a conference call yesterday that the group will focus on internal growth in the future and expects to expand its market share in Hong Kong and the UK’s two major cities. The Asian market, which has great development potential and the most promising growth prospects, will be given priority in terms of investment. . “The mainland’s wealth management needs are huge. Mainlanders will also diversify their assets to include other overseas markets in Hong Kong and Singapore, and it is expected to promote growth throughout Asia.”

Overall growth targets Market expectations

For the overall group growth, the increase in weighted risk assets (RWA) ranged from 1% to 2% over the next three years, which was less than the 4% market expectation. Based on managerial caliber, I believe that it is related to the regulatory authority’s further increase in capital requirements. The so-called RWA, that is, according to the level of asset risk, another capital consumption, high risk business, although the potential return is high, but capital consumption also increased.

Finance Director Mai Rongen pointed out yesterday that from Basel3 to Basel4, regulatory expectations for capital requirements have increased. Therefore, the Group will increase the CET 1 target in the next three years from the highest 13% in the past to 14% in the future. It means that it is more difficult to return shareholders with capital instruments including dividends and repurchase.

As for the dividend-paying policy that the market is paying attention to, HSBC only gave the most conservative dividend policy, indicating that the remaining dividend of 51 cents (approximately HK$3.978) will remain unchanged in the next three years. At the same time, the repurchase will only be used to offset the dividend payout. The dilutive effect has disappointed the securities industry, which had estimated HSBC’s dividend payment in the fastest 2019 financial year earlier.

The Lions Bank’s forecast for future capital requirements has been adjusted upwards, setting the CET 1 target to be higher than 14%, which is the expected cap, and also restricting the return of capital to shareholders in the future. UBS said yesterday that the investment community has seen more HSBC growth than dividends, but the 2% growth rate is less than expected, suggesting that the group has more reinvestment needs.

Dividend over 5.2%

Due to the lack of surprises in HSBC’s strategic objectives, the stock price was under pressure during London trading hours and fell by nearly 1%, equivalent to HK$75.87. With dividends unchanged, the dividend yield exceeded 5.2%. The investment community expects that high dividend yields will provide good support for stock prices, and there will be limited fall.

The Mainland continues to open up the financial industry, Fanning said that the Group has been laying a solid foundation for expanding its business in the Mainland and is facing competition from the mainland market in other industries. It “opens its mind to the acquisition targets that meet the strategic objectives,” but it has not been announced at this stage. For the introduction of China Depositary Receipts (CDRs) in the Mainland, Fanning said that he is open-minded and is still studying and understanding relevant measures at this stage.

In addition, dragging down HSBC’s US operations for many years has also become one of the strategic focuses of this round. Fanning pointed out that the local operating environment has improved, and that it has withdrawn its loss-making credit card business 7 years ago and is confident that it can turn a profit in 3 years.

In the broader market, the Hang Seng Index closed at 31063 points, up 105 points, and the market closed down to a nearly 4-month low of 77.4 billion yuan.