HSBC’s top shareholder, Ping An, has escalated a dispute with the bank, accusing executives of exaggerating the downfalls of splitting off the Asian business, and insisted the move could instead boost the bank’s value by up to $35bn (£28.6bn), according to a source close to the investor.
It comes after HSBC’s chief executive, Noel Quinn, used an earnings announcement last week to defend the bank’s strategy and stress that its success was dependent on maintaining its global network.
Quinn has been under pressure since April when Ping An revived calls to separate HSBC’s profitable Asian business from the rest of the London-headquartered bank’s operations.
However, according to a source with knowledge of the investor’s views, Ping An has hit back at Quinn’s arguments, saying: “HSBC only emphasised and clearly exaggerated the downsides and challenges of spinning off its Asia business, but did not mention the huge benefits and long-term value that a spin-off could create.”
It added that external analysis had suggested that a spin-off would “generate additional market value of $25-35bn” (£21-29bn) and that the bank would be able to deploy an additional $8bn in capital that would otherwise be held to offset risk in the rest of the business.
The investor also believes that the move would save money related to IT and headquarter costs over time.
While HSBC beat analyst estimates in the second quarter, reporting flat pre-tax profits of $5bn (£4.1bn), Ping An is said to have claimed that “almost all of its revenue growth was dependent on a phased, short-lived and uncontrollable interest rate hike cycle”.
Higher interest rates – which have been hiked in an attempt to combat soaring inflation in recent months – have allowed banks like HSBC to charge borrowers more for loans and mortgages, and in turn increase their net interest margin, which is a key measure of profitability and growth.
While HSBC’s Asia operations remain more profitable than the rest of the bank, Ping An is also said to have raised concerns about the state of its Asia business model, saying it is “inefficient and cannot compete with its peers”. The investor added that profits for the division had been declining for the past two years.
“Its underperformance has not yet been fundamentally addressed and it is in urgent need of radical change,” the source said, reflecting the investor’s views.
Ping An is among a number of investors unhappy with returns on investment, particularly 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.
HSBC said it would not comment beyond what executives had already expressed during the second quarter earnings results last week.
