HSBC urged to break up by largest shareholder and accused of ‘exaggerating’ risk

HSBC has “exaggerated” the “costs and risks” of spinning off its Asian operations, according to Chinese insurer Ping An, as the bank’s largest shareholder used a rare public statement to lay out how it should separate the business.

Michael Huang, chair of Ping An Asset Management, said in a statement on Tuesday that although a split would involve initial costs, these should be “open-mindedly weighed against the benefits”. 

He added that over the past two years Ping An had suggested a range of ideas for a split, from listing HSBC’s Asia business in Hong Kong to consolidating its operations across the region.

HSBC has repeatedly rejected calls to restructure the bank, arguing that the costs and risks would be too great.

Huang’s comments mark the first time Ping An, which has an 8 per cent stake in HSBC, has gone public with its view on how the bank should split off its Asia operations. The latest demand will escalate pressure on the London-listed bank ahead of its annual meeting next month and cast doubt over its structure as a global banking group.

The escalating calls to split the bank come during a period of mounting geopolitical tensions, with HSBC caught between China and the west.

Huang said on Tuesday that HSBC would retain significant influence over a spun-off business: “Firstly, HSBC Group would still remain the controlling shareholder of a separately listed Asia headquartered bank in order to preserve global business line synergies.

“Secondly, each structural solution would deliver material benefits to the group’s shareholders including valuation unlock, capital relief, long-term efficiency gains, geopolitical risk mitigation and competitive repositioning,” he added.

Huang said that any separation would still leave the global bank’s synergies “intact”. He said that by remaining the major controlling shareholder, HSBC group would have “great influence” over commercial arrangements.

“HSBC Asia may continue using current business systems under service agreements with HSBC just as it has successfully done with Hang Seng Bank for years,” Huang said. “Operational improvements from an Asia spin-off should offset additional costs from independent corporate functions.”

Huang also criticised HSBC’s defence, pointing to management’s list of reasons as to why a break-up would destroy material value: “Not only did management refuse to countenance any benefits but also, in our view, exaggerated many of the costs and risks.”

Ping An said its calls for structural reform were an attempt to boost HSBC’s returns, which Huang argued continued to “significantly underperform” peers. He said that last year, HSBC delivered a return on equity of 9.9 per cent versus 12.5 per cent by its global peers.

The latest comments come after sources close to Ping An said it would vote in favour of two resolutions at the bank’s annual meeting, calling for dividends to be increased to pre-Covid levels and the bank to commit to a regular structural review. HSBC said the “board recommends all shareholders vote against these two resolutions”.

HSBC said: “It is our judgment, supported by third-party financial and legal advice, and with third-party assurance, that alternative structural options will not deliver increased value for shareholders. Rather, they would have a material negative impact on value.”