Ping An insists HSBC split would increase bank’s value | HSBC
HSBC’s largest shareholder, Ping An, has escalated a dispute with the bank, accusing executives of overstating the Asian business split’s falls, and insisted the move could boost the value of the company instead. bank up to $35bn (£28.6bn), according to a source close to the investor.
It comes after HSBC Chief Executive Noel Quinn used an earnings announcement last week to defend the bank’s strategy and stress that its success depended 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-based bank’s operations.
However, according to a source with knowledge of the investor’s perspective, Ping An hit back at Quinn’s arguments saying, “HSBC has only highlighted and clearly exaggerated the downsides and challenges of splitting off its Asia business, but not Didn’t mention the enormous benefits and long-term value that a spin-off could create.
He 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 additional capital of $8 billion that would otherwise be held to offset risk in the rest of the business.
The investor also believes the move would save money related to IT and head office costs over time.
As HSBC beat analysts’ estimates in the second quarter, reporting flat pre-tax profits of $5bn (£4.1bn), Ping An reportedly claimed that “virtually all of its revenue growth depended on gradual, short-lived growth and an uncontrollable cycle of rising interest rates”.
Higher interest rates – which have been raised in an attempt to tackle 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 Asian operations remain more profitable than the rest of the bank, Ping An also reportedly raised concerns about the state of its business model in Asia, saying it is “inefficient and cannot compete with his peers”. The investor added that the division’s profits had been falling for two years.
“Its underperformance has not yet been fundamentally corrected and it urgently needs a step change,” the source said, reflecting the investor’s view.
Ping An is among a number of investors unhappy with returns, particularly after HSBC canceled the dividend during the UK’s first coronavirus lockdown and then restored it to just half the level paid before the pandemic.
HSBC said it would not comment beyond what executives already expressed during second-quarter results last week.