HSBC thwarts a major investor’s plan to break up the bank

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By Nick Marsh, Asia Business Correspondent May 5, 2023, 15:34 GMT

Updated 2 hours ago

Image source, Getty Images

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HSBC is headquartered in the United Kingdom

HSBC fended off an attempt by its largest shareholder to break up the bank during a frequently tense annual general meeting.

Chinese insurance company Ping An has been trying for more than a year to split the bank.

On Friday it failed to win the support of any other major shareholder as investors voted to reject the offer.

HSBC chairman Mark Tucker said the result “draws a line” in a long-running debate over the bank’s structure.

Although HSBC is headquartered in London, the vast majority of HSBC’s profits take place in Asia.

Ping An, which owns an 8% stake in HSBC, wants the lender to spin off its Asian business.

She argues that the bank’s profitable operations in Asia support other parts of the bank that are not operating as strong. Splitting HSBC would also free it from the requirements of UK regulators.

Ping An and Ken Lowe, a Hong Kong-based HSBC individual shareholder, needed to secure 75% of all votes cast at the AGM to force a split.

They fell short of those numbers, with no other major institutional investor backing the plan.

Tucker told the AGM that a breakup of the bank would undermine his global strategy, and would be risky and costly.

“It would not be in the interest of shareholders to split the bank,” he said at the General Assembly meeting in Birmingham, which has been repeatedly boycotted by climate change activists who claim HSBC is not doing enough to reduce its funding of polluting industries and businesses.

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Climate change activists have targeted HSBC’s annual general meeting in Birmingham

At the meeting, Mr Lowe vowed to stand up to the split plan, saying he would continue to put pressure on HSBC management and put pressure on the bank’s many small shareholders in Hong Kong.

It is not clear what will be the next step for Ping An but there are bigger factors at play other than making a return on its investment.

Ping An is partially owned by the Chinese state and, according to some analysts, could represent Beijing’s political goals as much as the financial interests of its shareholders.

Hong Kong is by far China’s most important financial center and HSBC is the central institution.

Some argue that for Beijing, the idea of ​​leaving the city’s most valuable assets in Western hands may be too risky to bear.

The economic isolation of Russia after the invasion of Ukraine is a case in point.

Should a similar geopolitical crisis arise involving China — not an impossibility given tensions over Taiwan and the South China Sea — controlling one of Asia’s largest banks would be vital.

In this sense, HSBC is dealing with an existential crisis that dates back to its founding in Hong Kong under British rule.

For most of its 158-year history, the Hong Kong and Shanghai Banking Corporation – as it was originally known – has had a long-distance relationship with the United Kingdom.

In fact, HSBC only became a major player on the UK’s High Street in the 1990s, when it bought Midland Bank and moved its headquarters to London in 1993. To this day, HSBC prints banknotes in Hong Kong.

“There is a huge gap between HSBC’s center of gravity in Hong Kong and its subordination to regulators in Britain,” says Steve Vickers, a Hong Kong-based corporate risk advisor. “This is a historical accident and a relic of the colonial era.”

A small taste of this came in 2020, when the Bank of England directed HSBC and other UK lenders to stop paying dividends to shareholders because of the pandemic.

This has angered Hong Kong’s common shareholders, who own about a third of HSBC’s shares and many of whom depend on the payments to their pension funds.

From the perspective of the Chinese mainland, it was a simple yet stark illustration of the authority of the officials on the other side of the world. Asia may make the money, but London ultimately decides.

This is not a situation that Ping An or China wants to be in. Why Ping An has pressed HSBC so hard and publicly may be explained by the kind of shareholder activity usually associated with Western investors.

“A more assertive China is now not afraid to project itself in the international business arena,” says Steve Vickers. “But they have to tread very carefully with HSBC – the stakes are high.”

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