London/Beijing There was a time when the major British bank HSBC was seen as a model for the future. A global financial institution with strong footholds in the UK, US and Asia seemed like a blueprint for global banking in an ever-converging world economy. HSBC boss Noel Quinn has therefore made the expansion of business in the growth market of Asia a matter close to his heart and shifted activities worth billions from West to East.
But the strategy is now being challenged by geopolitical tensions between the political West and China. Trade wars, threats of decoupling (technological decoupling), the Beijing regime’s disregard for freedom and the rule of law in Hong Kong and the smoldering conflict over Taiwan – all of this also threatens the idea of a major bank with 40 million customers in 64 countries.
At first glance, it is therefore not surprising that the largest Chinese insurance group, Ping An, which is also HSBC’s largest shareholder with a good nine percent stake, has apparently now called for the major bank to be split up.
The Chinese are said to be dissatisfied with the market value of the big bank, which is around 30 percent below the book value of the balance sheet. A spin-off of the Asian business, which most recently brought in two-thirds of pre-tax profits, is considered the key to this earning power also being reflected more strongly in the share price.
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The Asian part of the bank could then be listed separately on the Hong Kong Stock Exchange. “To the extent that the Asian arm would appreciate, a split might make sense,” said fund manager Steve Clayton of UK investment firm Hargreaves Lansdown.
Anger because of the ongoing control of the financial regulator
The fact that HSBC, founded in Hong Kong in 1865, is still controlled by the British financial regulator is also said to cause discontent in China. Especially after HSBC had to cut its dividend two years ago under pressure from the Bank of England at the beginning of the pandemic. The capital requirements for the Asian part of the bank would also be lower with a Hong Kong listing.
The CEO of the major British bank defends his Asia strategy.
(Photo: AFP)
“We support a debate about the future of the bank,” said a spokesman for Ping An, “we want shareholders to take part in the debate and propose solutions for HSBC.” HSBC had previously defended the course it had taken: “We believe that we have the right strategy and are focused on executing it,” said an HSBC spokeswoman.
This is the fastest way to generate higher returns and maximize shareholder value. The lines are drawn when HSBC and Ping An leaders are reportedly set to meet in mid-May.
Demands for a split of the 157-year-old HSBC are not new. Back in 2015, the bank was arguing about moving its headquarters from London to Hong Kong. The British insurance group Prudential, which split into a British, US and Asian part in 2019, is considered a role model.
HSBC has remained on the Thames to this day, but has repeatedly been caught in the political crossfire between China and the West. For example, in the dispute over Huawei manager Men Wanzhou, who was arrested in Canada, and later when HSBC supported the controversial security law in Hong Kong, with which Beijing suppressed the freedom movement in the former British crown colony.
Significant risks
Whether a split of HSBC would be a blessing for shareholders is quite controversial. Analysts point out that the major British bank is currently benefiting primarily from the fact that it supports many of its western customers in their Asian business. “I think we’re in a unique position to support corporate clients in particular and some of our international retail clients as they trade between East and West,” HSBC CEO Quinn said at a recent shareholder meeting. US competitors such as JP Morgan or Citigroup, which are also heavily active in Asia, could benefit from a split HSBC.
In addition, the quarterly results just published by HSBC show that too much focus on Asia also entails considerable risks. The ongoing corona lockdowns in China and the turbulence on the real estate market there weighed on earnings in the first three months of the current year.
More: Boards of HSBC and Ping An are reportedly planning a spin-off proposal meeting