August 4, 2017 / 6:44 AM / 2 years ago

Hargreaves Lansdown cancels special dividend after regulator warns on capital

(Reuters) - Fund supermarket Hargreaves Lansdown (HRGV.L) cancelled a planned special dividend on Friday after Britain’s financial regulator said the company needed to shore up its capital base, sending its shares lower.

Hargreaves, which helps retail customers invest in a range of products through its online platform, said the Financial Conduct Authority (FCA) had said the company’s strong growth and increased complexity meant it needed to bolster its cash buffer.

The company plans to launch its HL Savings product later in the year, a cash deposit service supported by marketplace lending, and this year also launched Lifetime ISAs, or individual savings accounts eligible for a government bonus.

While the FCA did not specify a precise figure, Hargreaves said the new methodology to be used by the regulator meant it needed to keep back an extra 50 million pounds ($66 million), and would not have enough to pay a planned special dividend.

“The group maintains a strong net cash position and the board believes it already had a robust balance sheet with sufficient capital to fund ongoing trading and future growth,” Hargreaves said in a statement.

“The action announced today maintains capital above our regulatory risk appetite levels, in line with our strategy of offering a safe and secure home for our clients’ lifelong investments.”

The FCA action comes just weeks after it said it would launch a study looking at whether online fund platforms were providing good value for money for investors.

Shares in the firm were down 5.1 percent at 0751 GMT, among the top fallers on in the blue-chip FTSE 100 index .FTSE, despite the company also updating on several measures of trading ahead of its formal results, to show it was performing well.

Hargreaves said net assets under administration rose 28 percent to 79.2 billion pounds for the year ended June 30. Pretax profit for the period also rose 21 percent to 265-266 million pounds.

The company is set to report results on Aug. 15.

“While we would expect the shares to react negatively this morning, we expect the capital increase to be a one-off event, with any future increases dealt with via a more gradual build-up of surplus capital through a slightly lower overall payout,” said Shore Capital analyst Paul McGinnis.

McGinnis said the pretax profit figure was 4 percent above his forecast and he advised clients to “use any weakness today to pick up shares in this asset gathering monster”.

Reporting by Sanjeeban Sarkar in Bengaluru; Editing by Anjuli Davies and Mark Potter

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