HSBC Receives First Dividend From U.S. Unit in More Than a Decade -- 3rd Update

By Margot Patrick Features Dow Jones Newswires

HSBC Holdings PLC on Thursday said it took its first dividend since 2006 from its U.S. bank in April, a milestone in the lender's yearslong turnaround.

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The release of capital--for an unspecified amount--and better-than-expected first-quarter profit at the bank raised expectations HSBC could buy back more shares after eschewing investment to spend $3.5 billion on buybacks in the past year.

HSBC shares rose 4% in London trading. However, Finance Director Iain Mackay said in an interview that the lender will hold off on further buybacks in the near term.

The dividend payment is a symbolic step in the lender's restructuring program, which Chief Executive Stuart Gulliver launched in 2011 to refocus on Asia and scale back in places that were too risky or unprofitable, or where the bank was too small. Almost 100 businesses have been shut, including most of HSBC's operations in Latin America.

The moves have freed up capital for other investments, but a lack of opportunities led HSBC to buy back shares.

Mr. Mackay told analysts the payment was the first step in releasing billions of dollars in capital "trapped" in HSBC's U.S. business. He declined to say how much had been paid out to the parent bank and a spokeswoman said the number wasn't currently being released. The dividend was anticipated since HSBC's North America holding company passed annual stress tests in July.

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He said it could take three years or more to recoup extra U.S. capital, which analysts estimate at $7 billion to $10 billion. HSBC has major banking operations in the U.S. but for years has been winding down the remnants of Household International Inc., the subprime lender it bought just a few years before the subprime mortgage market crashed in 2007.

Mr. Mackay said a deferred prosecution agreement the bank entered with the Justice Department in 2012 could also "reflect on the capital position."

HSBC must raise its anti-money-laundering standards and meet other conditions to exit from the DPA, part of a settlement with U.S. authorities over allegations it failed to spot money laundering by criminal gangs and to flag transactions with countries under economic sanctions. HSBC admitted the wrongdoing.

The Asia-focused bank was Thursday reporting first-quarter earnings, which beat expectations with a $3.13 billion net profit and small rise in revenue,

Net profit was down from $3.89 billion in the first quarter of 2016 but higher than the $2.67 billion analysts had estimated. Adjusted profit, stripping out one-time items and taxes, rose 12% to $5.94 billion, with gains across retail banking, commercial banking and global banking and markets.

Analysts are expecting up to another $2 billion in stock buybacks in the second half. Mr. Mackay in an interview said the bank wasn't making any commitments and would take "a little pause" for now on buybacks. The bank will take another look at the possibility after the second quarter, he said.

"Our preference will always be to invest capital for future growth," he said. He told analysts an expansion into China's Pearl River Delta region was starting to bear fruit.

The bank's overall Asia operations notched $4.31 billion in adjusted profit before tax, up 25% from a year earlier, on retail banking and wealth management numbers and higher insurance sales.

In the U.K., a main market for the bank alongside Hong Kong, Mr. Mackay said loan demand from households and businesses is holding up despite uncertainty around the country's planned exit from the European Union.

"When you look at the economic numbers there may be some slowing but that is not manifested in customer behavior at this point in time," Mr. Mackay said.

After the years of reorganizing, HSBC is now readying to change its top leadership. In March it said Mark Tucker, CEO of insurer AIA Group Ltd., would replace Chairman Douglas Flint in October. Mr. Tucker will then start looking for a new CEO to take over from Mr. Gulliver. Mr. Gulliver said in March that he wants to retire from the bank in 2018.

Julie Steinberg in Hong Kong contributed to this article.

Write to Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

May 04, 2017 08:04 ET (12:04 GMT)