In an unexpected announcement at 7am, the group said the Financial Conduct Authority (FCA) planned to reassess its regulatory capital requirements “given the group’s strong recent growth in scale and complexity”.
As a result, Hargreaves has scrapped plans to pay a special dividend in order to boost its capital surplus by £50m going into the 2018 financial year.
“The revised assessment would mean the group’s regulatory capital surplus during 2018 is insufficient to meet our risk appetite levels if we paid a special dividend for the year ended 30 June 2017 in line with market expectations,” Hargreaves said.
The announcement sent its shares tumbling 6% in early trading. They recovered slightly but were still down 4% by lunchtime Friday.
Alliance Bernstein analysts said the announcement was a “negative surprise” and forecast the group would underperform the market by around 15 percentage points going forward in a note seen by Portfolio Adviser.
However, Hargreaves did confirm it will still pay a total ordinary dividend for the financial year ending 30 June 2017, amounting to a payout ratio of 65% of net income.
It added: “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.
“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’s announcement also led Hargreaves to push forward the release of its annual results, which had been due on 15 August.
Net new business was up 15% over the past year with 118,000 more active clients, and assets under administration soared 28% to £79.2bn, the group revealed.
It added profit before tax saw an increase of 21% to a range of £265m to £266m.
