HSBC “exaggerated the costs and risks” associated with spinning off its Asian business, according to Chinese insurance company Ping An. The bank’s biggest shareholder made a rare statement in public to explain how it should separate its Asian business.
Michael Huang, chairman of Ping An Asset Management said in a Tuesday statement that although a division would incur initial costs, they should be “openly weighed against benefits”.
He said that Pingan, over the last two years, had proposed a variety of ideas for a separation. These ranged from listing HSBC Asia’s business in Hong Kong up to consolidating the company’s operations throughout the region.
HSBC repeatedly refused to restructure its bank, arguing the costs and risk would be too high.
Huang’s comments are the first time Ping An has publicly expressed its opinion on how HSBC should separate its Asia operations. Ping An owns an 8 percent stake in HSBC. The latest demand will escalate pressure for the London-listed Bank ahead of its annual meetings next month, and cast doubt on its structure as an international banking group.
Ping An has not been able to gain support from other institutional shareholders. A proxy adviser has also urged investors to refuse two hostile AGM resolutions introduced by small retail investors.
The escalating requests to split the bank comes during a time of increasing geopolitical tensions. HSBC is caught between China’s and the West’s interests.
Huang said on Tuesday that HSBC will retain a significant influence over a spin-off company. “First, HSBC Group will still be the controlling shareholder of a separate listed Asia headquartered Bank in order to maintain global business line synergies,” he stated.
He added that “secondly, each structural option would provide material benefits to shareholders of the group, including valuation unlocking, capital relief and long-term gains in efficiency, as well as geopolitical risks mitigation, competitive repositioning, and long-term savings.”
Huang stated that a separation would not affect the synergies of the global bank. He stated that HSBC would be able to “greatly influence” commercial agreements if it remained the largest controlling shareholder.
He said that HSBC Asia could continue to use its current business systems as part of service agreements with HSBC, just like it had done successfully with Hang Seng Bank over the years. “Operational benefits from an Asia spinoff should offset the additional costs of independent corporate functions.”
Huang criticised HSBC’s defence by pointing out the management’s list reasons for why a breakup would destroy value. “Not only refused management to acknowledge any benefits, but we also believe that they exaggerated a number of costs and risks.
Huang argued that HSBC continues to “significantly” underperform its peers. Ping An’s calls for structural change are an attempt to increase HSBC returns. He stated that HSBC’s return on equity last year was 9.9 percent, compared to 12.5% for its global peers.
Sources close to Ping An had said that the bank would vote for two shareholder resolutions during the annual meeting of the bank, which called for the dividends to increase to pre-Covid level and to have the bank commit to a periodic structural review.
Mark Tucker, the chair of HSBC, has publicly opposed these proposals. Glass Lewis, a proxy adviser who is influential in the industry, said that in a report published on Tuesday owners should vote against both proposals as they are “not in shareholders’ interest”.
Glass Lewis stated that “the board’s strategies and plans seem valid and will likely result in greater value and returns than the overly directive and, in our view, unnecessary proposals presented.” Glass Lewis said: “We don’t believe that further evaluation or pursuit is warranted at this time.”
HSBC stated: “It’s our opinion, backed by third-party legal and financial advice and third-party assurances, that alternative structure options won’t deliver greater value to shareholders.” They would instead have a negative impact on shareholder value.
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