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RUTH SUNDERLAND: Breaking up is tough at HSBC

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RUTH SUNDERLAND: UK banking authorities can be prudent to insist HSBC takes steps to guard the British taxpayer within the event of a break-up

  • Bosses under pressure to separate lender into Eastern and Western business
  • Agitation not only on investment grounds but a fig leaf for Beijing’s politics?
  • Authorities there little doubt want tame bankers in Hong Kong 

The highest brass at HSBC, which reports its results today, are immune to calls to interrupt up the bank. But can they hold that line? 

Chairman Mark Tucker and chief executive Noel Quinn have set their faces against pressure from major shareholder Ping An, an enormous Chinese insurer, to separate the international lender into two with a separate Eastern and Western business. 

They are going to put their case to Hong Kong shareholders in a gathering tomorrow. Ping An has been disgruntled because the Bank of England forced HSBC to suspend its dividend within the pandemic. The resumption of payouts has didn’t allay its discontent. 

Making a case: Arguments that a split would release billions of kilos of value and lift the share price are tenuous

In business terms, dismembering HSBC looks off-kilter. Arguments that a split would release billions of kilos of value and lift the share price are tenuous. 

The concept appears to be that an independent Asian division wouldn’t be weighed down with onerous Western regulation. Two smaller banks, the argument goes, would pose less of a threat to the worldwide financial system, due to this fact the regulators wouldn’t force them to carry a lot capital as a security net. That in turn would take a brake off growth. 

In fact, there isn’t a guarantee regulators would do any such thing. Contained in the HSBC boardroom, Ping An’s activist behaviour is being taken very seriously. 

Advisers from Goldman Sachs and investment bank Robey Warshaw have been hired to make a case against break-up. There may be a sense that if HSBC’s share price were to rise, a number of the annoyance at Ping An would dissipate. At the outcomes today, executives will make great play of the expansion potential, including within the UK where there’s scope for expansion in wealth management, mortgages and private loans. 

From the bank’s perspective, its whole raison d’etre is its international trade networks. Then there’s the sensible difficulty. Splitting in half makes it sound as if it will be a clean break, when in point of fact it will be untangling a cats’ cradle – a costly, long-winded and sophisticated exercise.

The suspicion, nevertheless, is that Ping An’s agitation just isn’t solely driven by investment motives, but is a fig leaf for the political agenda in Beijing. 

The authorities there little doubt need to tame bankers in Hong Kong who will deal with China’s priorities and interests. The actual fact HSBC has allowed a communist party committee to establish shop in its Chinese investment arm is an indication of the times. 

The backdrop to the Ping An bombshell is one among mounting geopolitical tension. HSBC has in recent times been caught between Scylla and Charybdis, prone to upsetting either China or the US – where it also has substantial operations – or each. 

Senior MPs are demanding HSBC must be sanctioned if it doesn’t break connections with a firm linked to the ethnic cleansing of Uighur Muslims. Some executives are also keen to do more business in Saudi Arabia, despite human rights concerns. 

However the bank’s stance of political neutrality is becoming harder to keep up when firms are being called upon to take a principled stance over Ukraine, and giants reminiscent of BP and Shell have pulled out of Russia. Many now fear a Chinese invasion of Taiwan might be the subsequent catastrophe. 

HSBC just isn’t frightened of diplomatic difficulty. It has been navigating tricky international waters with aplomb because it was founded in 1865. Quite possibly, it would extricate itself from these current difficulties because it has previously. However the UK banking authorities can be prudent to insist it takes steps to guard the British taxpayer within the event of a break-up, just in case.

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