HSBC has reacted to accusations that it exaggerated costs of spin-off its Asian operations. It said such a split would result in a’material loss of shareholder value’.
HSBC has exchanged blows with insurer Ping An in the lead-up to its annual general meeting, scheduled for two weeks.
Ping An has requested that the bank be divided . However, he has not been able to gain support from other major shareholders or proxy advisors.
The bank stated in a Wednesday afternoon statement that “The structural reforms suggested by Ping An of HSBC’s Asia-Pacific business would significantly erode the international business model on which HSBC’s strategy is based.”
This would lead to a material erosion in earnings, dividends, shareholder value and returns. It would also disrupt our unique global service proposition. “HSBC therefore cannot recommend or support to its shareholders any of the structural options proposed or considered.”
HSBC stated that its senior management, including chairman Mark Tucker and CEO Noel Quinn, had met Ping An executive “approximately” 20 times in the last 18 months. They also carried out an analysis of the benefits and drawbacks of a split-up.
The bank stated that spinning off its Asia-Pacific operations would not be consistent with their business model. It would also create “significant revenue dis-synergies”, cost money, and present “significant complexity and implementation risks”.
The board stated that “HSBC should continue to focus on executing its current strategy, which is delivering value to shareholders and is confident that this is the safest and best way to continue to provide substantial more value to shareholders in the coming years.”
The bank responded to a unusual public statement made by Ping An Tuesday. Michael Huang, chairman of the insurer’s Asset Management Division, stated that while a split might involve some initial costs, they should be “openly weighed against benefits”.
Analysts at Keefe Bruyette & Woods estimated that the cost of breaking up HSBC in the manner proposed by Ping An could be as much as $13bn.
Ping An’s campaign, which lasted for a year, has not been supported by any major institutional shareholders. Glass Lewis is urging investors to reject the two hostile AGM resolutions that were introduced by small retail investors.
The escalating calls for the split of the bank comes during a time of increasing geopolitical tensions. HSBC is caught between China’s and the West’s interests.
HSBC’s shareholders will vote at the AGM on 5 May on the proposal for restructuring the business. The bank stated that it hoped that a vote in opposition would “bring to an end this issue”.
Ping An, however, will continue to ask HSBC to separate its Asian business following the annual meeting if the other shareholders vote against a division.