HSBC's profits and other figures cheered investors earlier this week, but there is chatter over calls by Ping An, the big Chinese insurer, for its Asia business to be broken off to improve results. The bank met with shareholders yesterday.
HSBC bosses were scheduled to meet with shareholders in Hong Kong yesterday to discuss moves such as a promise to pay larger dividends and discuss pressure for it to be broken up by large shareholder Ping An Insurance Group of China, aka Ping An.
As reported here, HSBC on Monday reported financial results, including a rise in profits for the six months to the end of June. Figures also showed that the Asia region now accounts for almost 70 per cent of the group’s profit. HSBC has deep historical roots in Asia, and much of its strategy has been around tapping into the region’s rising wealth.
The bank’s Asia profile is also a headache, however. The banking group has reportedly pushed back on a proposal by insurance group Ping An (source: Reuters, 1 August) to break the UK/Hong Kong-listed bank up. HSBC is likely to demur, given how it routinely refers to the benefits of its global status, such as its variety of revenue streams.
HSBC has a battle to persuade some investors of its current structure remaining intact. "Resuming paying quarterly dividend in 2023 is 'too late' and the promised level of dividend is 'too low', said Jay Chong, an activist shareholder, who is in his 30s and whose family holds more than half a million shares of HSBC, Reuters reported yesterday.
Ping An has been building a stake in the lender since 2017. The group proposed to split off HSBC’s Asian operations in April this year.
In a call with analysts, Noel Quinn, chief executive, reportedly told analysts: "We have sympathy for Ping An and all our shareholders that our performance has not been where it needed to be for the last 10 years.”
Shares in HSBC fell about 2 per cent yesterday; on Monday, following the results announcement, they had closed up by more than 8 per cent as investors were cheered by the promise of a return to quarterly dividends.
The sheer importance of Asia to HSBC is likely to be uncomfortable for a bank that is based in the UK and where relations between the West and China have cooled, as a result of Beijing’s security crackdown on Hong Kong, for example. In July, there was controversy when it was revealed that employees who form branches of the Chinese Communist Party within private companies had a unit in HSBC’s China securities business. HSBC was quoted by media as saying that such branches were a common feature and had no influence on the bank’s day-to-day activities.
Ping An argues that HSBC cannot easily reconcile its large Chinese exposures while also staying on the right side of UK regulators and policymakers. The insurer says this dilemma has hit HSBC’s share price, and that an independent Asia business listed in Hong Kong would be more profitable, require less capital and be freer to take decisions. On the flipside, it would not be able to boast the global structure that has been so much of its brand in recent years. By contrast, a number of rival banks have shut booking centres and focused on specific regions. For example, Citigroup is in the process of selling a number of retail businesses around the world and pivoting to wealth management. (For example, it sold its Philippines business this week.)
Back in 2008, when the financial crisis hit, the sheer size of some banks raised questions over whether such lenders had become “too big to fail” and that the UK government would lack the resources to bail it out. HSBC, with its global muscle, did not need a bailout; at the time its CEO criticised state support for other lenders.