HSBC's biggest shareholder Ping An plans to vote in favour of proposals to force Europe's biggest bank to consider structural changes, the Chinese insurer said, in a major escalation of a row between the two. Ping An said it wants HSBC to create a separately listed Asian bank headquartered in Hong Kong.
"Despite sharing multiple suggestions with HSBC, we have been extremely disappointed by HSBC management’s consistent closed-minded attitude to all solutions," said Michael Huang, CEO and chairman of Ping An Asset Management.
"We believe that both the HSBC team and its appointed paid external advisers have an adamantly preconceived view against reviewing any structural options, despite our continued request for an open dialogue and the demands of other shareholders," Huang said in a statement published on Ping An's website on Tuesday.
Ping An owns about 8.3% of HSBC's shares. It said proposals made by another shareholder, Lui Yu Kin, to force management to consider structural reforms "have their merits" and it supports "in principle" the two resolutions and wants HSBC to consider suggestions.
HSBC has urged shareholders will vote against the resolutions at its AGM on May 5. To pass, at least 75% of the votes cast must be in favour.
“It is our judgment, supported by third-party financial and legal advice, and with third-party assurance, that alternative structural options will not deliver increased value for shareholders. Rather, they would have a material negative impact on value," an HSBC spokeswoman said on Tuesday. "We remain clear that our current strategy is the fastest, safest and most value-enhancing way to deliver returns."
HSBC has previously said there would be significant costs from any structural changes, there would be high execution risks and it would create an unwelcome distraction for management. HSBC is being advised by Goldman Sachs, sources have previously told IFR.
Ping An's statement was its strongest criticism of the bank to date. It has previously called on HSBC to consider breaking up and listing its Asian business to improve returns.
"It is necessary for HSBC to push for structural reform to fundamentally address HSBC’s underlying market competitiveness issues, improve performance, enhance value and accelerate growth opportunities in Asia," Huang said.
He said an earlier proposal to spin off the Asian business could be adjusted to "a strategic restructuring solution", which would address HSBC’s concerns about destroying global value, higher costs and legal barriers.
"Challenges aside, we believe that a structural solution which creates a separately listed Asia business headquartered in Hong Kong will crystallise multiple benefits to all HSBC Group shareholders. This would include material value creation driven by a multiple re-rating of an Asia-focused business, RoTE (return on tangible equity) accretion, cost synergy benefits, and capital relief benefits."
Huang added: "A structural solution would also deliver a refocused Asian organisation that is more streamlined, nimble, localised and has stronger competitive positioning to benefit from Greater Bay Area development and the Chinese yuan internationalisation. The HK-listed business would be able to focus on investing resources in Asia and being more attuned to local Asia market dynamics."
He said a separately listed Asian business would also provide greater dividend protection for shareholders in Asia from challenges to the bank's operations outside the region.
"We believe the new HSBC Asia, after strategic restructuring, will rapidly become one of the most profitable businesses with a dedicated Asia-focused management team capable of generating stronger shareholder returns. It will be the most valuable and unique bank in Asia with the strongest growth potential within the HSBC system, and also the only local bank with global competitiveness," Huang said.
Ping An said the solution it suggested would allow HSBC to remain the controlling shareholder of the Asian bank so it could preserve global synergies.
Ping An said it started investing in HSBC in 2015. After initial optimism, it said it grew increasingly concerned about HSBC’s deteriorating operating performance, underperformance against peers, damaging dividend policy adjustments, decline in market value and a "tepid response to global business model challenges".
As a result, it said since 2020 it had intensified engagement with HSBC and presented "a raft of detailed considered suggestions" to the bank.
It said HSBC's most recent results showed improvement and management embracing some of its suggestions, such as exiting some business lines and resuming quarterly dividends. But it said it had five major concerns about the bank, including RoTE and cost targets that are not stretching enough and the use of HSBC Asia to support lower-returning businesses elsewhere.