LONDON (ShareCast) - (ShareCast News) - Hargreaves Lansdown has been forced to cancel its special dividend after the City regulator ordered it to strengthen its backup surplus of cash, but indicated it is likely to report strong profits for the year to 30 June.
The Financial Conduct Authority told the FTSE 100 firm on Thursday that it was increasing its capital requirements due to its recent growth in scale and complexity, with clients almost numbering one billion and net assets under administration having increased by more than a quarter over the last year.

Hargreaves cannot now pay its usual special dividend as this would mean it would not have enough regulatory capital surplus during 2018 to meet its risk requirements.

The company expects to continue with its existing dividend policy of paying 65% of earnings but will not now top this up with a special dividend, which has in the past taken the total payout to more than 90%.

Instead the directors plan to keep hold of an additional £50m of capital to keep the business within the FCA's stipulated levels.

With final results due on 15 August, the company decided to report some key elements alongside this unscheduled update, including that profit before tax increased 21% to £265-266m.

Net assets under administration increased 28% to £79.2bn as active client numbers rose by roughly 118,000 0.95bn.

"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," it 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."

Broker Shore Capital had forecast the company would declare an ordinary dividend of 28.1p, costing circa £133m, and a special payout of 12.3p costing £58m, based on its PBT forecast of £254m, which now looks well short.

"No specific guidance is given around Jun '18 dividend policy, so in principle the special could be reinstated next year, in line with the policy of returning excess cash.

"However, we would speculate that HL may elect to keep its overall payout (ordinary + special) a little lower than historic levels to preserve a buffer against future events of this nature."

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