HSBC is under mounting pressure to break up after its largest shareholder, Chinese insurer Ping An, told the bank to split its Asian and western operations, calling time on a dual focus that has endured for more than a century.
The rupture with Ping An, the biggest insurance group in China, marks a worsening of HSBC’s geopolitical woes, with the bank increasingly torn between China and the west.
Ping An has set out its plan for the break-up of HSBC, which is led by chair Mark Tucker and chief executive Noel Quinn, according to people familiar with the matter.
Ping An has argued that an independent Asia business listed in Hong Kong would have higher profitability, lower capital requirements and greater autonomy to make decisions.
A second top-10 shareholder told the Financial Times that Ping An’s proposal was a “pretty interesting idea”, adding: “For HSBC, it’s existential. They are not in a tenable structure. You wouldn’t create this institution from scratch.”
A demerger would also give shareholders more choice on what parts of the sprawling lender — which has 40mn customers, more than 200,000 staff and operations in 64 countries — they want to own, the insurer has told the bank in private.
Ping An told executives it thought HSBC’s balancing act between its Chinese and western interests would only become more difficult in the coming years, according to people familiar with the discussions.
HSBC was criticized in China after it provided information to US prosecutors that led to the arrest of Huawei’s chief financial officer, Meng Wanzhou, in 2018. It has also been targeted by US and UK politicians over its Chinese executives’ support for Hong Kong’s controversial national security law.
“HSBC is in the least tenable position of any financial institution in the world on the US-China conflict. They’re in a position where everyone hates them — the UK, France, the US, Hong Kong and China. I don’t see a path out of their current situation today and I don’t see the geopolitical tension getting better,” said the second top-10 shareholder.
Ping An was also disappointed by the Bank of England’s decision to force HSBC to cancel its dividend during the initial stage of the pandemic. The insurer is frustrated that while the majority of the bank’s earnings are made in Asia — in particular in Hong Kong, where it was founded in 1865 — the lender is still overseen by regulators in the UK.
HSBC moved its headquarters to London when it bought Midland Bank in 1992. To comply with UK law, its British consumer operations are formally ringfenced from the rest of the group and would continue operating normally if its global operations were split.
In a sign of the extent of the discontent, a person close to the insurance company said it had threatened to vote against half of the resolutions at HSBC’s annual general meeting on Friday — including the re-election of several board members and the proposed pay awards for 2021 — in a public show of dissatisfaction. However, in the event, there was no significant shareholder vote against the board at the AGM.
Tucker has rebuffed calls for a break-up of the bank, saying at the AGM that he was happy with the group’s strategy and performance.
In 2015, HSBC debated whether to move its headquarters from London to Hong Kong before deciding to stay put.
Ping An owns 9.2 per cent of HSBC, according to two people familiar with the matter. The latest publicly disclosed shareholdings show Ping An at 8 per cent, just behind BlackRock at 8.3 per cent. Ping An declined to comment.
HSBC said: “We believe we’ve got the right strategy and are focused on executing it. Delivering on this strategy is the fastest way to generate higher returns and maximize shareholder value.
“HSBC supports customers, corporates and institutions across key capital and trade hubs around the world. This network manifests itself in our leading global franchises across retail, wealth and wholesale banking,” it added.
A top-20 shareholder said: “It would be technically extremely complex[to break up the bank]. . . Significant tax and capital dis-synergies could arise, a significant amount of network income would be at risk and management would be massively distracted at the very point when the revenue environment is becoming much more attractive as rates rise.”
Shares in HSBC have recovered 85 per cent since hitting a 25-year low in September 2020, when the bank was weighed down by Covid-19 lockdowns, ultra-low rates and geopolitical tensions.
