RUTH SUNDERLAND: Breaking up is hard at HSBC

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RUTH SUNDERLAND: UK banking authorities would be prudent to insist that HSBC take steps to protect the UK taxpayer in the event of a breach

  • Bosses under pressure to split lender into Eastern and Western affairs
  • Agitation not just for investment reasons but a fig leaf for Beijing politics?
  • Authorities undoubtedly want tame bankers in Hong Kong

Senior brass at HSBC, which reports results today, are resisting calls to break the bank. But can they hold that line?

Chairman Mark Tucker and chief executive Noel Quinn have resisted pressure from major shareholder Ping An, a major Chinese insurer, to split the international lender into two with a separate East and West business.

They will present their case to Hong Kong shareholders at a meeting tomorrow. Ping An has been unhappy since the Bank of England forced HSBC to suspend its dividend during the pandemic. The resumption of payments failed to appease his discontent.

Making the case: Arguments that a split would unlock billions of pounds of value and boost the share price are tenuous

In commercial terms, the splitting up of HSBC seems out of step. Arguments that a split would unlock billions of pounds of value and boost the share price are tenuous.

The idea seems to be that an independent Asian division would not be weighed down by onerous Western regulations. The argument goes, two smaller banks would pose less of a threat to the global financial system, so regulators wouldn’t force them to hold so much capital as a safety net. This, in turn, would stunt growth.

Of course, there is no guarantee that regulators would do such a thing. In the boardroom of HSBC, Ping An’s activism is taken very seriously.

Advisors from Goldman Sachs and investment bank Robey Warshaw have been hired to argue against the breakup. There is a feeling that if HSBC’s share price were to rise, some of Ping An’s annoyance would dissipate. Looking at today’s results, executives will be making much of the growth potential, including in the UK where there are opportunities for expansion in wealth management, mortgages and personal lending.

From the bank’s point of view, its entire raison d’être lies in its international commercial networks. Then comes the practical difficulty. Splitting in two feels like a clean break, when in reality it would be untangling a cat’s cradle – an expensive, time-consuming and complicated exercise.

The suspicion, however, is that Ping An’s unrest is not solely driven by investment motives, but is a fig leaf for Beijing’s political agenda.

Authorities there no doubt want to tame Hong Kong bankers who will focus on China’s priorities and interests. The fact that HSBC allowed a Communist Party committee to move into its Chinese investment arm is a sign of the times.

The backdrop to the Ping An bombing is one of rising geopolitical tensions. In recent years, HSBC has been caught between Scylla and Charybdis, at the risk of upsetting either China or the United States – where it also has significant operations – or both.

Senior MPs are calling for HSBC to be punished if it does not sever ties with a company linked to the ethnic cleansing of Uyghur Muslims. Some leaders also want to do more business in Saudi Arabia, despite human rights concerns.

But the bank’s stance of political neutrality is becoming increasingly difficult to maintain as companies are called upon to take a principled stance on Ukraine and giants such as BP and Shell have pulled out of Russia. Many now fear that a Chinese invasion of Taiwan could be the next disaster.

HSBC is not afraid of diplomatic difficulties. It has navigated delicate international waters with aplomb since its inception in 1865. It is highly likely that it will emerge from these current difficulties as it has in the past. But UK banking authorities would be prudent to insist they take steps to protect the UK taxpayer in the event of a breach, just in case.

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