HSBC 2008 Annual Report Download - page 12

HSBC HOLDINGS PLC
Group Chairman’s Statement (continued)
Group Chairman’s Statement
10
Thank you to our people
This was an extraordinary year and made
extraordinary demands on many of our people. I
want to express my sincere thanks for all their efforts
and achievements. Our industry has rightly been
under considerable public scrutiny and banks have
been indiscriminately bunched together. It is through
our staff that HSBC’s distinctive character stands out
for our customers and it is they who ensure that not
all banks are the same.
Dividend declaration and progressive
dividend policy
The Directors have declared a fourth interim
dividend for 2008 of US$0.10 per ordinary share (in
lieu of a final dividend) which, together with the first
three interim dividends for 2008 of US$0.18 already
paid, will make a total distribution in respect of the
year of US$0.64 per ordinary share. The payments in
total represent a decrease of 29 per cent in US dollar
terms compared with 2007 and of 15 per cent in
sterling terms. The dividend will be payable on 6
May 2009 to shareholders on the register at the close
of business on 20 March 2009.
After 15 years of double-digit dividend growth,
we did not make the decision to lower the dividend
lightly. Very careful consideration was given to the
current operating environment and the increased
uncertainty over both the supply of capital required
in an increasingly volatile financial world and a
pro-cyclical regulatory capital framework.
For 2009, HSBC has rebased the envisaged
dividend per share for the first three interim
dividends to US$0.08 to reflect the impact of the
enlarged ordinary share capital following the Rights
Issue we are announcing today, prevailing business
conditions and capital requirements. The dividend
payments remain substantial and reflect
management’s long-term confidence in the business.
HSBC will continue to aim to pay progressive
dividends in line with the long-term growth of the
business.
Maintaining HSBC’s financial strength
The logic of maintaining HSBC’s distinctive
financial strength which we have applied to our
dividend also applies to our capital position. We
have announced today a Rights Issue to strengthen
further our capital ratios. We propose to raise, on a
fully underwritten basis, approximately
US$17.7 billion of equity which will increase our
capital ratios by 150 basis points, strengthening the
core equity tier 1 ratio to 8.5 per cent and the tier 1
ratio to 9.8 per cent, both on a pro forma basis as at
31 December 2008. I shall be writing to all
shareholders with full details.
Over the past 12 months, many of our
competitors have received significant government
capital injections – something we said we could not
envisage – or have raised capital from shareholders
and other investors. Higher regulatory capital
requirements, in part from the effect of the economic
downturn on capital requirements under the Basel II
regime, as well as changing market sentiment on
appropriate levels of leverage, have also raised
expectations regarding capital levels. We are
determined that HSBC should maintain its signature
financial strength and we are now raising the top of
our target range for the tier 1 ratio so that the range
will be from 7.5 per cent to 10 per cent.
Planned internal capital generation remains
strong and this capital raising will enhance our
ability to deal with the impact of an uncertain
economic environment and to respond to unforeseen
events. Importantly, it will also give us options with
respect to opportunities which we believe will
present themselves to those with superior financial
strength. These may involve organic investment in
the continued taking of market share from more
capital constrained competitors. There may also be
opportunities to grow through targeted acquisitions
by taking advantage of attractive valuations where
the opportunities in question align with our strategy
and the risks are understood.
Culture and compensation
We believe in the profound importance of culture
and ethics in business. HSBC’s longstanding
traditions of financial strength, long-term customer
relationships and conservative management are as
important today as ever. They have not always been
fashionable and we have not always been perfect.
One of the consequences of the crisis – and rightly –
is that we are going to see a fundamental
re-evaluation of the rules and regulations that govern
our business. But we should remember that no
amount of rules and regulations will be sufficient if
the culture does not encourage people to do the right
thing. It is the responsibility of Boards to supervise
and management to embed a sustainable culture into
the very fibre of the organisation. For HSBC, there is
nothing more important.
We also intend to play our part in rebuilding
public trust in our industry. This means we must be
willing to take part in and shape the debate on how
our industry should evolve in the coming years,
based on the lessons which must be learnt from this
crisis. In particular, we strongly believe that the