HSBC has hit back at accusations from its biggest investor that it exaggerated the cost of spinning off its Asian operations, saying such a break-up would result in a “material loss of value” for its shareholders.
HSBC and insurer Ping An, which owns 8 per cent of the bank’s stock, have exchanged blows in the run-up to the UK-listed lender’s annual general meeting in two weeks.
Ping An has called for the bank to be split up, though has so far failed to attract support from other large shareholders or proxy advisers.
“Structural reforms of HSBC’s Asia-Pacific businesses suggested by Ping An would significantly dilute the international business model upon which HSBC’s strategy is based,” the bank said in a statement on Wednesday afternoon.
“This would result in a material erosion of earnings, returns, dividends and shareholder value, and a disruption to our unique global customer service proposition,” it added. “Accordingly, HSBC cannot support or recommend to its shareholders the structural options that have been proposed or otherwise considered.”
HSBC said that its senior managers — including chair Mark Tucker and chief executive Noel Quinn — had met Ping An executives “approximately 20” times over the past 18 months and carried out analysis on the advantages and disadvantages of a break-up.
The bank said that spinning off all or part of its Asia-Pacific business was not consistent with its business model, would create “meaningful revenue dis-synergies”, be costly and bring “significant complexity and execution risks”.
“The board strongly believes that HSBC should focus on executing the current strategy that is delivering, and which the board is confident is the best and safest way to continue to deliver substantially more value for shareholders over the coming years,” it added.
The bank was responding to a rare public statement from Ping An on Tuesday, where Michael Huang, chair of the insurer’s asset management division, said that although a split would involve initial costs, these should be “open-mindedly weighed against the benefits”.
This week, analysts at Keefe, Bruyette & Woods said they estimated the costs involved in breaking up HSBC along the lines proposed by Ping An would be as high as $13bn.
Ping An’s year-long campaign has failed to garner support from any other major institutional shareholder, and proxy adviser Glass Lewis has urged investors to reject two hostile AGM proposals introduced by small retail investors.
The escalating calls to split the bank come during a period of mounting geopolitical tensions, with HSBC caught between China and the west.
HSBC shareholders will vote on the proposal to restructure the business at its AGM on May 5. The bank said it hoped a vote against would “bring this issue to a conclusion”.
But Ping An will continue to call on HSBC to spin off its Asian business after the annual meeting if other shareholders vote against a separation, according to a source close to the insurer.
Ping An declined to comment.