Bloomberg / London
HSBC Holdings Plc kickstarted its public fightback against Ping An Insurance Group Co’s push to break it up this week. The early indications are that the lender has a long way to go to convince some shareholders of its strategy.
Amid chaotic scenes at a shareholder meeting in Hong Kong on Tuesday at which dozens of investors were turned away, protesters held up placards in support of Ping An as HSBC executives and directors got their first chance to make their case directly to stockholders.
Chairman Mark Tucker and Chief Executive Officer Noel Quinn used the keenly awaited gathering to say the Chinese insurer’s Asian carve-out plan was unworkable and posed a major risk to the London-headquartered company. It would also put Hong Kong’s place as a global financial centre at risk, with a break up of HSBC potentially having a “negative impact” on the former British colony, Quinn warned.
The warning did not move Ping An. At the end of the highly-charged meeting, the insurer said in a statement: “We note the demands expressed by a number of HSBC’s small and medium-sized shareholders. We support any proposal that is conducive to improving HSBC’s operating performance and enhances shareholder value.”
HSBC’s uncharacteristically direct remarks followed comments made alongside its second-quarter results on Monday. “We believe the strategy we’re pursuing is the right strategy,” said Quinn, speaking in a phone interview on Monday. “It’s the fastest and safest way to improve returns and improve dividends.”
HSBC set out 14 reasons why changing the bank’s structure was a bad idea, ranging from the length of time it would take – the bank reckons as long as five years – to the loss of direct access to US dollars. Against this, the lender is also talking up its own pivot to Asia strategy that involves shifting more capital and resources from west to east as it looks to bulk up in areas like wealth management and insurance.
To bolster its case, the bank has started to publish more information on how its Asian operations rely on their connections to businesses outside of the region. HSBC gave the example of its Asian securities services business where just two out of its 20 largest clients are based in Asia, with the rest in North America or Europe.
If the Hong Kong business was split off its revenue would fall, Quinn told the shareholder gathering. “That would have a very negative impact on the profitability in Hong Kong which would then have a negative impact on the market valuation of the business in Asia and of the dividend potential in Hong Kong,” the British banker said.
Prominent figures in Hong Kong, such as Christine Fong Kwok-shan, a councilor for Hong Kong’s Sai Kung district, disagree. Some shareholders believe they are not being considered at the moment, Fong said.
“They think the Bank of England isn’t protecting the interests of shareholders, particularly in Asia,” said Fong, whose parents own shares in the bank. Fong supports a break up and also wants Ping An to get a seat on HSBC’s board, something Quinn has rejected.
Some Hong Kong investors see their city as the cash cow for a bank that is beholden to Western interests. A letter from Ken Lui, an HSBC shareholder and representative of a new investor forum calling themselves the Spin Off HSBC Asia Concern Group, expanded on this view. “Since 2021, the Asian business remains to contribute almost 70% of the bank’s profits,” wrote Lui.
“The profits generated in Asia were allocated to subsidise the loss suffered in Europe and America,” Lui wrote.
The Bank of England’s order in March 2020 that major UK banks cease dividend payments as the Covid crisis unfolded stirred sustained investor anger among Hong Kong investors. Tucker apologised Tuesday for the cancellation and said such an order from the UK central bank was unlikely to be repeated. The bank has promised to lift its dividend next year, but this seems unlikely to satisfy Ping An and some of its Hong Kong retail investors.
“I am not sure a bit more dividend will appease an activist referencing structural change,” said Joseph Dickerson, a banks analyst at Jefferies International in London. “On the other hand, HSBC’s management’s robust points on group structure serve as good touch points for a broader debate.”
The increase in dividend payouts should mollify some retail shareholders, along with HSBC’s control of costs and swelling revenues, said Bloomberg Intelligence analyst Jonathan Tyce. “We feel more comfortable than previously that now is not the time to be talking or exploring a breakup,” said Tyce.
There is no sign that Ping An, which holds more than 8% of HSBC’s shares, is about to drop its behind-the-scenes demands. The insurer continues to focus on persuading HSBC to give shareholders a vote on the the spin off of its Asian operations as a Hong Kong-listed and headquartered standalone business, according to a person familiar with the company’s thinking.
With Ping An unlikely to walk away, a long campaign beckons for HSBC and its advisers from Goldman Sachs Group Inc and Robey Warshaw as they make the case that the status quo beats radical change.
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