HSBC’s chief executive has hit back at calls for a breakup from the top shareholder Ping An, saying splitting the business would come with “material costs” and a “high risk of failure” that could harm investors long-term.
It came as the bank reported flat pre-tax profits of $5bn (£4.1bn) for the second quarter, as income from mortgages and loans was offset by the amount it had to put aside for potential defaults linked to weaker economic forecasts.
That resulted in a lower bonus pool for bankers, which will be paid out next spring, with $400m raised for performance-related payouts in the first half of the year versus $900m a year earlier.
However, that is 12 times more than the roughly £27m it pledged for 18,000 of its lowest-paid UK staff, who will receive a one-off payment of £1,500 this month to help with the cost of living crisis. HSBC paid 451 of its bankers €1m (£837,000) or more last year, a 40% increase on the number of staff with such payouts in 2020.
Meanwhile, shareholders are in line for an interim cash dividend of nine cents a share, although HSBC pledged to boost payouts and start paying dividends on a quarterly basis again from the start of 2023.
The move, which pushed its stock up more than 7% on Monday, appears to be an attempt to appease investors after its largest shareholder – the Chinese insurer Ping An – revived calls to separate the bank’s profitable Asian business from the rest of the lender’s operations in April.
Ping An is among those who have been disappointed at their returns on their investment, after HSBC cancelled the dividend during the first UK coronavirus lockdown and later reinstated it at only half the level paid out before the pandemic.
However, the lender’s chief executive, Noel Quinn, used Monday’s earnings announcement to hit back at demands for a breakup, defending the bank’s strategy and stressing its success was dependent on maintaining its global network.
Quinn told reporters that the bank had hired external lawyers and consultants to consider the costs and benefits of a split but ultimately determined: “Alternative structural options will not deliver increased value for shareholders.”
He said: “Rather, they would have a material negative impact on value, and our current strategy is the fastest and safest way to get to the higher returns and dividends we all want to see … The primary factor is about disruption to, and potential loss of, the international synergies.”
He said HSBC’s analysis showed that carving out a relatively small European bank in a single market could cost more than $2bn, “and even then, has a high risk of failure. So you can understand the risks of standing up separate entities for a franchise of our size … the cost and execution risks over a three-to-five-year period are material.”
Quinn also rebuffed calls by the Hong Kong politician Christine Fong for Ping An to take a seat on HSBC’s board. Quinn claimed any such move could pose a conflict of interest “given the overlapping business models and given the overlaps in geography”.
Ping An is the latest in a line of critics putting pressure on HSBC, which has been pushed to consider its loyalties amid political tensions between the east and west after controversially accepting China’s authoritarian crackdown on democracy in Hong Kong in 2020.
However, Quinn denied that calls for a split were politically motivated. “The conversations between ourselves and Ping An have been purely around commercial issues. We do not see this as an issue of politics,” he said.
“We believe also that the strategy that we’re pursuing as an international bank, alongside many of our peers and global competitors, is a strategy has stood in good stead over the past 157 years and will continue to serve us well.”
