Breaking up is hard at HSBC
The top brass at hSBC, which reports its results today, are resistant to calls to break up the bank. But can they hold that line? Chairman Mark Tucker and chief executive Noel Quinn have set their faces against pressure from major shareholder Ping An, a big Chinese insurer, to split the international lender into two with a separate eastern and Western business.
They will put their case to hong Kong shareholders in a meeting tomorrow. Ping An has been disgruntled since the Bank of england forced hSBC to suspend its dividend in the pandemic. The resumption of payouts has failed to allay its discontent.
In commercial terms, dismembering hSBC looks off-kilter. Arguments that a split would release billions of pounds of value and lift the share price are tenuous.
The idea seems to be that an independent Asian division would not be weighed down with onerous Western regulation. Two smaller banks, the argument goes, would pose less of a threat to the global financial system, therefore the regulators would not force them to hold so much capital as a safety net. That in turn would take a brake off growth.
Of course, there is no guarantee regulators would do any such thing. Inside the hSBC boardroom, Ping An’s activist behaviour is being taken very seriously.
Advisers from Goldman Sachs and investment bank Robey Warshaw have been hired to make a case against break-up. There is a feeling that if hSBC’s share price were to rise, some of the annoyance at Ping An would dissipate. At the results today, executives will make great play of the growth potential, including in the UK where there is scope for expansion in wealth management, mortgages and personal loans.
From the bank’s point of view, its whole raison d’etre is its international trade networks. Then there is the practical difficulty. Splitting in half makes it sound as though it would be a clean break, when in reality it would be untangling a cats’ cradle – a costly, long-winded and complicated exercise. HOWEVER, the suspicion is that Ping An’s agitation is not solely driven by investment motives, but is a fig leaf for the political agenda in Beijing. The authorities there no doubt want to tame bankers in hong Kong who will focus on China’s priorities and interests. The fact hSBC has allowed a communist party committee to set up shop in its Chinese investment arm is a sign of the times.
The backdrop to the Ping An bombshell is one of mounting geopolitical tension. hSBC has in recent years been caught between Scylla and Charybdis, at risk of upsetting either China or the US – where it also has substantial operations – or both.
Senior MPs are demanding hSBC should be sanctioned if it does not break connections with a firm linked to the ethnic cleansing of Uighur Muslims. Some executives are also keen to do more business in Saudi Arabia, despite human rights concerns.
But the bank’s stance of political neutrality is becoming harder to maintain when companies are being called upon to take a principled stance over Ukraine, and giants such as BP and Shell have pulled out of Russia. Many now fear a Chinese invasion of Taiwan will be the next catastrophe.
hSBC is not scared of diplomatic difficulty. It has been navigating tricky international waters with aplomb since it was founded in 1865. Quite possibly, it will extricate itself from these current difficulties as it has in the past. But the UK banking authorities would be prudent to insist it takes steps to protect the British taxpayer in the event of a break-up, just in case.