HSBC’s top shareholder, Ping An, has escalated a dispute with the bank, accusing executives of exaggerating the shortcomings of splitting up the Asian business, and argued that the move could instead value increasing the bank by up to $35bn (£28.6bn), according to a source close to the investor.
It comes after HSBC chief executive Noel Quinn used last week’s earnings announcement 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 lucrative Asian business from the rest of the London-headquartered bank’s operations.
However, according to a source familiar with the investor’s views, Ping An has hit back at Quinn’s arguments, saying: “HSBC has only emphasized and clearly exaggerated the disadvantages and challenges of spinning his Asia business, but he did not mention the huge benefits and long-term value that a spin-off could create.”
He added that external analysis suggested a spin-off would create “additional market value of $25-35bn” (£21-29bn) and the bank would be able to deploy an additional $8bn in capital it would otherwise hold. offset risk in the rest of the business.
The investor also believes the move would save money related to IT and headquarters 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 gradual, short-lived rate and rate hike cycle uncontrolled interest”.
Higher interest rates – raised in an attempt to tackle rising inflation in recent months – have allowed banks such as HSBC to charge borrowers more for loans and mortgages, thereby increasing on 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 business model in Asia, saying it is “inefficient and unable to compete with its peers”. The investor also said that the division’s profits had been declining for the past two years.
“Its underperformance has not yet been fundamentally addressed and radical change is urgently needed,” the source said, echoing the investor’s views.
Ping An is among several investors unhappy with returns on investment, especially after HSBC canceled the dividend during the UK’s first coronavirus lockdown and later reinstated it at half the level paid before the pandemic.
HSBC said it would not comment beyond what executives had already revealed during its second-quarter earnings results last week.