May 12, 2022
HSBC Begins Internal Analysis to Help Rebut Proposal for Split
, Bloomberg News
(Bloomberg) -- HSBC Holdings Plc has begun an internal review that’s part of an effort to rebut calls from its largest shareholder to discuss splitting off its Asian operations.
The London-headquartered bank is examining the case for a break up after Bloomberg reported late last month that Ping An Insurance (Group) Co. was pushing the lender to spin off its Asian unit to improve returns, according to people familiar with the matter, who asked not to be identified discussing private information.
Executives are against the idea of splitting up HSBC but have begun the analysis in an effort to push back against Ping An’s argument that the bank’s investors would do better from being able to choose to invest in a pure-play Asian business headquartered in Hong Kong.
Work is in the early stages, but one of the people said the aim was to complete the report in the coming weeks and present it to the bank’s directors. Prudential Plc’s split, the insurer which carved off its Asian unit from its UK operations in 2019, is regarded as a poor comparison given the limited network effects the insurance industry can exploit. Ping An had said in a private memo that the break up of Prudential provided a precedent for splitting up HSBC.
A spokeswoman for HSBC declined to comment. A representative for Ping An didn’t immediately respond to a request for comment.
About 65% of HSBC’s of pretax profits last year came from Asia, while Hong Kong is the bank’s single largest market. However, HSBC has argued that while Asia appears to be the dominant source of its revenues, much of this is actually business with Western clients that gets booked in the region.
In an investor presentation last year, HSBC said that half of its foreign exchange revenues booked in the East came from Western clients, while about 65% of securities services revenue in the East originated in the West. Highlighting these so-called network effects will be a key part of HSBC’s case to shareholders that carving up its worldwide business does not make sense.
Analysts at Barclays Plc estimated in a research note this month the changes could knock 3% to 8% off the group’s market value. Also, any in-depth work on breaking up the bank would take more than a year, according to two people with knowledge of the company’s inner workings, highlighting how time-consuming any spin off of the Asian business could be.
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