The top shareholder of HSBC Holdings Plc has increased pressure on the bank to restructure its operations, calling for a “strategic restructuring” of the institution only weeks before its annual shareholder meeting. HSBC must advocate for structural transformation in order to genuinely solve the bank’s underlying market competitiveness concerns, improve performance, increase value, and accelerate growth potential in Asia.
The allegations by Ping An.
Ping An, the bank’s largest shareholder, said that bank’s management has fundamentally failed to address key business model challenges, escalating a feud between Europe’s largest bank and the Chinese insurer. With an 8% stake in the bank, the Chinese insurer would be unable to achieve a break-up on its own, and there has been no sign that it has persuaded other big institutional investors of HSBC that its proposal is viable. According to Ping An Asset Management Company (Ping An AMC), HSBC “drained” its Asia arm of dividends and growth capital to fund its relatively low-return non-Asian operations.
Ping An AMC said it had presented various structural proposals with HSBC management over the last two years, ranging from listing the HSBC Asia division in Hong Kong to combining Asia companies. Ping An’s latest words come as shareholder advisory company Glass Lewis recommended investors vote against recommendations for a strategy review and dividend policy overhaul, exacerbating divides among the bank’s ownership factions ahead of its annual meeting on May 5. They think that establishing a separately listed Asia company located in Hong Kong will result in several benefits for all HSBC Group shareholders.
Glass Lewis stated that the strategic review plan, filed by individual shareholder Ken Lui in Hong Kong and supported by Ping An, was “not in the best interests of shareholders.” The resolutions proposed by Lui demand that HSBC restore dividends to 51 cents per share and offer frequent updates on strategy, including the prospect of selling off its Asia division.
Glass Lewis stated in a letter to clients that the board’s strategy and objectives look reasonable and are likely to result in superior returns and value, risk and cost-adjusted, than the proponent’s overly prescriptive and, in their opinion, unneeded suggestions.
The defence by team HSBC.
HSBC reiterated its position that the ideas are unworkable. A representative for the bank stated that it is their judgement, backed up by third-party financial and legal guidance and with third-party security, that alternative structural alternatives will not deliver increased value for shareholders.
The scenario of the rift.
Europe’s largest bank is under pressure to split off its Asia operations. The new demand comes only weeks before shareholders vote on a resolution at the annual meeting of the bank that might require it to come up with a plan to separate or reorganise its Asian division, which is HSBC’s major source of earnings. At an informal shareholder meeting last month, HSBC CEO Noel Quinn stated that the bank’s dissolution would result in “significant revenue loss” because most of its business relied on cross-border transactions. Along with Chairman Mark Tucker, he supported HSBC’s approach and stated that dividing the bank would not be in the optimum interests of shareholders.
According to the accusations against HSBC, the lender’s management inflated many costs and dangers of a split. Despite having made several ideas to HSBC, the people have been tremendously frustrated by the bank’s management’s constant closed-mindedness to all alternatives. Despite the continuing desire for an open conversation and the requests of other shareholders, the opposition believes that both the HSBC management and it’s designated paid external consultants have a strongly predisposed attitude against considering any structural solutions.
According to Ping An’s proposals, HSBC Group would continue to be the dominant shareholder of a separately listed Asian bank, giving it “great influence” over “commercial arrangements.”
Disclosure.
The opposing views among HSBC shareholders reflect a fundamental rift at Europe’s largest bank, which has struggled in recent years to meet long-term profit objectives and raise its share price. Ping An has pushed to speed plans to abandon retail banking in lagging Western countries, including France and Canada, since last November in order to deliver on a commitment to ‘pivot’ to Asia.
