HSBC chair Mark Tucker has issued a rebuke to the bank’s largest shareholder Ping An, rejecting calls to split its Asian and western operations and stating that “the best structure is our existing structure”.
In an occasionally tense meeting in Hong Kong’s Kowloon international trade centre on Tuesday, Tucker warned about 1,000 of HSBC’s retail shareholders that a break-up of its business would result in large costs over five years, a fall in the bank’s share price and reduced dividends.
It would be a “hugely complex exercise and our belief has been that the best strategy is to continue with positive momentum we currently have and not risk a major structural change”.
He said a split of its global operations would also hurt Hong Kong’s status as an international financial centre by reducing the bank’s global network.
“An international financial centre needs international financial institutions to help flows of revenue into and out of Hong Kong,” Tucker said. “I think it would negatively impact the ability of Hong Kong to remain a vibrant dynamic international financial centre.”
Earlier this year Ping An, a Chinese insurer that owns 9.2 per cent of HSBC’s shares, called on the bank to split its global operations to create an Asia business that would be based in Hong Kong, which would put it outside the regulatory control of the UK central bank.
It has also said that HSBC’s position straddling east and west was unsustainable in an era of escalating geopolitical and trade tensions between the US, UK and China.
Tucker said HSBC’s board was examining “alternative structures” in depth but added: “The board has a clear responsibility to protect and grow shareholder value, and work to date suggests the separation structure would not be consistent with that and would indeed destroy value.”
He also apologised for the bank cancelling dividends during the pandemic, which sparked anger among its retail investors in Asia and led to the unexpected activist attack by Ping An.
“I apologise sincerely for the impact that cancelling the dividend had on you and your families, I know it was a significant disappointment and how much stress and pain it caused,” Tucker said.
The dividend — which was cancelled as UK regulators forced banks to shore up balance sheets in order to mitigate Covid-19’s impact on the economy — has since been restored at only a fraction of its pre-pandemic value.
HSBC on Monday announced a new interim dividend of 9 cents as it reported better than expected financial results for the first half of the year, and pledged to restore dividends to pre-pandemic levels “as soon as possible”.
Before the pandemic, HSBC routinely paid a dividend of 51 cents, which many of its small retail shareholders — as well as large investors such as Ping An — relied on as a regular source of income. When it was cancelled, they reacted with fury, threatening lawsuits.
Getting the small shareholders back on side is crucial for HSBC’s management, because unusually for a large global institution they own about a third of the stock.
The bank has benefited from a windfall from rising global interest rates, which it has estimated will generate an additional $10bn of net interest income by the end of 2023 and allow it to sustainably boost its return on equity — a measure of profitability — to 12 per cent, the highest in a decade.
Chief executive Noel Quinn also addressed concerns from shareholders at the meeting that its current structure made it vulnerable to potential sanctions on China. The bank makes the bulk of its income in Hong Kong but maintains its headquarters in London.
Quinn said the bank did not “believe there to be risk of sanctions from current legal structure. We actually think the current structure enhances our ability to avoid the risk of sanctions.”
On Tuesday a group of retail investors calling themselves the Spin Off HSBC Asia Concern Group held a small protest outside the HSBC meeting, backing the Ping An proposal.
“The bank’s performance[s] in recent years were severely dragged down by the businesses in Europe and America,” the group said. It added that a break-up would unleash “potential value of $200bn” and “allow the bank to avoid future geopolitical risks”.
Not all of the retail shareholders who attended the meeting agreed with the idea of a break-up.
One Hong Kong woman, Li, said she had held HSBC’s stock since the 1970s. “My dad advised me to buy HSBC shares with my salary as it used to be a note issuer in Hong Kong when the city was under British colonial rule,” Li said. “Investing in HSBC is a very stable choice.”