HSBC’s top shareholder ramps up its campaign to spin off Asia business

HSBC’s largest shareholder has escalated its campaign to spin off the bank’s Asia business as the stand-off between the two looks set to turn ugly.

Ping An hit back at chairman Mark Tucker and chief executive Noel Quinn’s arguments against separation, stating that carving out HSBC’s lucrative Asian operations, which produce around two-thirds of the bank’s profits, will unlock between £20billion and £28billion of added market value.

Last week Tucker and Quinn warned shareholders that a divorce would erode HSBC’s share price and reduce dividends. 

Break-up plot: Ping An said HSBC had exaggerated the downsides of a spin-off and ignored the long-term value a separate Asian business would generate

The bank outlined 14 reasons why meddling with its structure would be counterproductive, ranging from a costly decoupling and losing existing clients to diluting global synergies and putting £3.6billion of cross-border wholesale banking revenues at risk.

Yesterday, however, Chinese insurer Ping An said HSBC had exaggerated the downsides of a spin-off and ignored the long-term value that a separate Asian business would generate.

Ping An has been agitating for a break-up since April and wants to list HSBC’s Asian business as an independent bank in Hong Kong, with current parent HSBC remaining a major shareholder in the Asian entity.

Aside from unlocking £20billion to £28billion of added market value, the bank would also be released from £6.5billion of capital requirements it is obliged to maintain given its status as a global systematically important bank. 

The Shenzhen-based insurer believes the Asia business is constrained by HSBC’s current group set-up and is trading at a discount to other Asian banks, including DBS.

Stand-off: HSBC chief executive Noel Quinn

The conglomerate claims HSBC Asia’s model is inefficient and uncompetitive, with its cost-to-income ratio significantly higher than its Asian peer group.

The strong riposte from Ping An to HSBC’s arguments for maintaining the status quo highlights the widening fault lines between the bank and its largest shareholder, with both sides digging in for the long haul.

HSBC has hired Goldman Sachs and Robey Warshaw, the Mayfair-based boutique investment bank which includes former chancellor George Osborne in its ranks, to advise on strategies for keeping Ping An at bay.

So far, the Ping An campaign has received short shrift in the City, with financial institutions dismissing split ambitions as technically complex, distracting for management and risky to the ‘network income’ HSBC generates through cooperation between its operations in different countries.

The clamour to form a separate Asian business has, however, gained traction with HSBC’s large Asian retail investor base, which holds around a third of the bank’s shares. 

Annoyed that the UK-based lenders had to halt dividends through the pandemic, on the orders of the Bank of England, Asian retail investors see hiving off HSBC Asia as a way to avoid similar dividend freezes in the future.

Tensions ran high last week when retail investors expressed their frustrations and support for a spin-off at an HSBC investor meeting in Hong Kong following the release of its interim results.

Some investors bore placards urging a split and calling for Ping An to be given a seat on the HSBC board.