LONDON • HSBC stuck to its promise of higher dividends yesterday after a 14 per cent profit drop fuelled doubts among some investors about its ability to increase payouts.
Europe's biggest bank also failed to boost its key capital ratio, underlining the challenge it faces in building capital buffers while growing its market-leading 8 per cent dividend yield.
Its dividend policy contrasts with those of European rivals including Barclays, Standard Chartered and Deutsche Bank, all of which have scrapped or reduced payouts as they grapple with restructuring costs.
"I don't think those share prices have performed well as a result of cancelling dividends... it's not something our shareholders would thank us for," chief executive Stuart Gulliver said on a conference call.
HSBC's dividend payout is already the highest among major European banks, according to Thomson Reuters data.
Bernstein analyst Chirantan Barua said in a note that a progressive dividend policy was "untenable", given the tough earnings environment and the fact that HSBC had not yet reached its regulatory capital threshold.
However, Mr Gulliver said the US$5.2 billion (S$7 billion) sale of HSBC's Brazil business to Banco Bradesco should be completed by June 30, and would take its key capital ratio to around 12.5 per cent.
HSBC reported this was unchanged at 11.9 per cent, from the end of last year, against analyst forecasts of 12.1 per cent.
Finance director Iain Mackay added that it would take a sharp decline in revenues if the global economy moved into recession, or regulatory demands for higher capital levels, to see HSBC reverse its stance on the dividend.
HSBC booked a pretax profit of US$6.1 billion for the first three months of 2016, down from US$7.1 billion a year ago, but above an average forecast of US$4.3 billion from analysts polled by the bank itself.
This reflected a tighter grip on expenses than analysts had forecast and a resilient performance from its trading business during rocky global markets earlier in the year.
Investors also suffered a drop in earnings per share to US$0.20 compared with US$0.26 for the equivalent period in 2015. That fall is expected to re-ignite speculation about a share buyback, after Mr Gulliver said HSBC was considering purchases to shore up its wilting shares, which are down by 28 per cent in the last 12 months.