HSBC Under Fire As Dollar Dividends Penalise UK Investors

Unlike other banks, HSBC pays its dividends in US dollars, but with the American currency having fallen 9 per cent against sterling over the past year, British investors — which make up around 50 per cent of the bank’s share register — are receiving less in dividends than a year ago, despite a 7 per cent rise in its dollar amount.

Yesterday, HSBC said that shareholders would receive a third interim dividend, payable on January 18, of 7.759p, against 7.792p in the same period last year. That drop means that the bank is paying £28 million less to British investors this quarter than it did through its first interim dividend in July, even though the dollar amount of the payout — 15 US cents — is unchanged.

That shortfall will put pressure on Stephen Green, HSBC’s chairman, to raise the final payout by at least the 11 per cent forecast by analysts when the bank files full-year results on March 5. According to most calculations, HSBC has about $20 billion (£10.3 billion) of surplus capital that could, in theory, be returned to shareholders. The bank has earmarked it instead for acquisitions.

Dividend expectations are a key influence on share prices in the banking sector and partly explain why HSBC’s shares were the worst performers among their British peers last year. Yesterday, they fell 9p to 932p.

Simon Maughan, an analyst at Blue Oak Capital, said that HSBC has suffered in comparison with the high and fast-growing dividends offered respectively by Lloyds TSB and Royal Bank of Scotland. “There are plenty of other places to look for yield,” he said.

Roger Lawson, a spokesman for the UK Shareholders’ Association, said: “It is one of the problems in investing in international companies.”

JPMorgan yesterday became the second heavyweight stockbroker in the space of a week to downgrade HSBC’s shares. The American firm has cut its profit forecasts by up to 8 per cent, and moved from “overweight” to “neutral”, on concerns that further weakness in mortgages and unsecured lending in the United States could undermine earnings at Household, its US consumer finance division. Last week, ABN Amro downgraded HSBC from “ hold” to “sell”, citing fears that rising bad debts at Household would not be offset by higher sales.

HSBC paid $14.7 billion for Household in 2002. Although it has generated $9 billion in profits in the first 3½ years under its new owners, investors have been unsettled by a sharper than expected deterioration in its bad debts over the past six months. HSBC has previously trumpeted the ability of Household’s computer-based modelling techniques to predict accurately likely default rates among American borrowers.

Yesterday Mr Green responded to criticism of HSBC’s corporate governance following his elevation from chief executive to chairman last year by stating that he plans to work as a “double act” with Michael Geoghegan, who replaced him.

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