LONDON — HSBC has strongly refuted allegations made by its biggest investor, dismissing claims that it overestimated the costs involved in spinning off its Asian operations.
The bank has vehemently defended its stance, highlighting that such a move could lead to a substantial decline in value for its shareholders.
The message from HSBC is clear: the potential risks of a breakup far outweigh any perceived benefits.
As the HSBC annual general meeting draws closer, tensions have risen between the bank and Ping An, the insurance giant that owns 8% of the bank’s stock.
While Ping An has called for a breakup of the bank, it has failed to gain the support of other major shareholders or proxy advisers.
The rift between the two companies has escalated, with both sides exchanging heated remarks, making it clear that this will not be a simple dispute to resolve.
As the stakes get higher, the world watches with bated breath to see who will emerge victorious.
“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. Accordingly, HSBC cannot support or recommend to its shareholders the structural options that have been proposed or otherwise considered.”
In a bold move, HSBC’s top executives, including chair Mark Tucker and CEO Noel Quinn, have revealed that they have held around 20 meetings with Ping An executives over the past year and a half to discuss the possibility of a breakup.
The bank has conducted extensive analysis on the potential benefits and drawbacks of such a move, and their conclusion is unequivocal: a spin-off of its Asia-Pacific business is incompatible with its business model.
The bank has warned that the costs of a breakup would be high, with “meaningful revenue dis-synergies” and significant execution risks, making it a far from straightforward proposition.
HSBC is standing firm, confident in the knowledge that they have considered all the options and made the right decision.
“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”.
Although acknowledging that a split would come with initial costs, Huang argued that these should be weighed up objectively against the potential benefits.
HSBC has now responded by affirming that it has already conducted an extensive cost-benefit analysis and concluded that the risks of a split far outweigh any potential advantages.
The bank is unwavering in its stance, determined to stay the course in the face of mounting pressure. The stakes are high, and both sides are digging in, ready for a battle that could have significant implications for the future of the industry.
As tensions between China and the west continue to mount, HSBC finds itself at the center of a high-stakes battle.
Keefe, Bruyette & Woods analysts estimate that Ping An’s proposed breakup of HSBC could cost up to $13 billion.
Despite their year-long campaign, Ping An has failed to gain the support of any major institutional shareholders, while proxy adviser Glass Lewis has urged investors to reject the proposals introduced by small retail investors.
With the AGM approaching on May 5, HSBC shareholders must decide whether to restructure the business or not.
If the proposal is rejected, Ping An will continue to push for the spin-off of HSBC’s Asian business, according to the Financial Times.
