HSBC Holdings Plc could increase dividends during China’s economic slowdown by returning capital it can’t deploy in the region, Citigroup Inc. said.
Europe’s largest bank could pay as much as 192 cents a share in special dividends between 2016 and 2018 if Asia is “unable to absorb as much capital re-deployment as expected,” analysts including Ronit Ghose wrote in a note to clients on Thursday.
Chief Executive Officer Stuart Gulliver is cutting assets from unprofitable divisions and shifting investment to Asia, the bank’s best-performing region. Turmoil in China threatens to undermine this plan as an economic slowdown in the country rattles global stock markets.
“Slower asset growth should have the silver lining of boosting HSBC’s free capital generation and dividends as it restructures its global operations,” the analysts wrote.
The Asian deceleration could also, however, force HSBC and Standard Chartered Plc to set aside more capital to cover souring loans, especially in southeast Asia and to firms with exposure to commodities.
The rise in bad loans could hit HSBC’s common equity Tier 1 capital ratio, a measure of financial strength, by 1 percentage point and Standard Chartered’s by 2 percentage points, the analysts said.