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RUTH SUNDERLAND: Breaking up is hard at HSBC

RUTH SUNDERLAND: UK banking authorities would be wise to insist that HSBC take steps to protect UK taxpayers in the event of a breach

  • Bosses under pressure to split lender into eastern and western companies
  • Agitation not just for investment reasons, but a fig leaf for Beijing politics?
  • Authorities there no doubt want tame bankers in Hong Kong

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HSBC executives, which are reporting their results today, are resisting calls to break the bank. But can they hold that line?

Chairman Mark Tucker and CEO Noel Quinn have resisted pressure from major shareholder Ping An, a major Chinese insurer, to split the international lender in two with a separate Eastern and Western company.

They will present their case to Hong Kong shareholders at a meeting tomorrow. Ping An has been unhappy since the Bank of England forced HSBC to suspend its dividend amid the pandemic. The resumption of payouts has not been able to allay his displeasure.

Making a case: Arguments that a split would free up billions of pounds in value and boost stock price are weak

Making a case: Arguments that a split would free up billions of pounds in value and boost stock price are weak

From a commercial point of view, taking HSBC apart looks odd. Arguments that a split would free up billions of pounds of value and increase the share price are weak.

The idea seems to be that an independent Asian division is not burdened by heavy Western regulations. Two smaller banks, the argument goes, would pose less of a threat to the global financial system, so regulators wouldn’t force them to hold as much capital as a safety net. That, in turn, would slow growth.

Of course, there’s no guarantee that regulators would do such a thing. In the HSBC boardroom, Ping An’s activist behavior is taken very seriously.

Advisors from Goldman Sachs and investment bank Robey Warshaw have been hired to file a case against the breach. There is a feeling that if HSBC’s stock price were to rise, some of the annoyance at Ping An would disappear. With today’s results, executives will capitalize on the growth potential, including in the UK, where there is room for expansion in wealth management, mortgages and personal lending.

From the bank’s point of view, the bank’s entire raison d’être is its international trade networks. Then there is the practical difficulty. Splitting in half sounds like it would be a clean break, when in reality it would be to untangle a cat’s crib — a costly, long-winded, and complicated exercise.

However, it is suspected that Ping An’s agitation is not only driven by investment motives, but is a fig leaf for the political agenda in Beijing.

The authorities there no doubt want to tame the bankers in Hong Kong who will focus on China’s priorities and interests. The fact that HSBC has allowed a communist party committee to settle in its Chinese investment branch is a sign of the times.

The background to the Ping An bomb is one of rising geopolitical tensions. HSBC has been caught between Scylla and Charybdis in recent years, at the risk of upsetting China or the US – where it also has significant operations – or both.

Senior MPs demand sanctions from HSBC if it does not cut ties with a company linked to the ethnic cleansing of Uyghur Muslims. Some executives are also eager to do more business in Saudi Arabia, despite human rights concerns.

But the bank’s political neutrality becomes harder to maintain when companies are called on to take a principled stance on Ukraine, and giants like BP and Shell pull out of Russia. Many now fear that a Chinese invasion of Taiwan will be the next catastrophe.

HSBC is not afraid of diplomatic difficulties. Since its foundation in 1865, it has sailed with confidence through difficult international waters. It is quite possible that it will free itself from these present difficulties as in the past. But UK banking authorities would be wise to insist that it take steps to protect UK taxpayers in the event of a breakup, just in case.

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