March 2, 2021

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Dividend Halt Puts HSBC at Risk of Losing Core Investors

(Bloomberg) — HSBC Holdings Plc’s dividend suspension threatens to cost the lender some of its core investor appeal in Hong Kong.

Payouts have been an important reason to own HSBC shares in the city. Its stock price has lagged the Hang Seng Index by more than 600 percentage points since 1986, the earliest available Bloomberg-compiled data from when a unified Hong Kong exchange commenced. But including dividends, HSBC’s total return is more than double the Hong Kong benchmark’s in the period.

Shareholders have started mobilizing. A group on Facebook Inc., called the HSBC Shareholders Alliance was recently established to call for legal action against the halted payouts. The group has contacted more than 3,000, or about 2%, of the lender’s shareholders and is demanding a scrip dividend in place of the canceled cash distribution, it said Monday afternoon. A scrip gives investors the option to receive dividends in the form of equity.

The stock was a market darling as recently as 2017, thanks to prospects for higher borrowing costs from the U.S. to Asia that makes lending a more profitable business. The monetary-policy environment has flipped, with central banks around the world slashing key lending rates to cushion the economic shocks triggered by the coronavirus.

HSBC’s yield has been constantly higher than Hang Seng members as a whole. But it will be zero this year after the bank and peers said they won’t make dividend payments in the face of U.K. regulatory pressure. HSBC Chief Executive Noel Quinn expressed regret last week to shareholders about the suspension. Shares closed 2.8% higher Monday in Hong Kong, rebounding from an 11-year low.

Here are some charts further illustrating how views have changed on HSBC.

Options market

Even after a 17% slump last week, the most since 2009, investors want to protect against further losses. Bearish HSBC options remain near their most expensive level in a decade versus bullish ones.

Analyst recommendation

Analysts’ average rating on HSBC shares was lowered by the most last week since 2009. The stock has 11 sell ratings from analysts tracked by Bloomberg, easily the most among the 50 members of the Hang Seng.

Sliding down the table

HSBC ended 2019 with the Hang Seng’s sixth-highest market value. But with the stock’s 36% slump to start this year, the bank is now worth less than HK$800 billion ($103 billion), below Bank of China Ltd., PetroChina Co. and AIA Group Ltd.

Mainland support

To be sure, HSBC shares are still favored by mainland-based investors. As the stock posted its biggest daily drop in Hong Kong since 2009 at 9.5% on April 1, mainland traders bought a net HK$434 million of shares through exchange links between the city and Shanghai. The connection has been closed since then due to a holiday and will reopen Tuesday. Sizable purchases last month pushed mainland investors’ ownership of HSBC shares to the highest in at least three years, according to data compiled by Bloomberg.

(Updates stock price and adds CEO comment in fifth paragraph.)

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