HSBC investors give cool response to Ping An breakup plan

HONG KONG, May 3 (Reuters) – Investors in HSBC (HSBA.L) gave a lukewarm response to its major shareholder’s proposed split on Tuesday, fearing a spin-off would prove complex without a guarantee of increased earnings. yields.

Chinese insurance giant Ping An has asked HSBC to explore options including splitting off its Asian business, where it makes two-thirds of its pre-tax profits, sources told Friday of the situation. Read more

Shares of HSBC in Hong Kong closed up 2.6%, while its London-listed shares were trading up 2.3% at 1553 GMT. Both exchanges were closed Monday for a public holiday.

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A breakup would jeopardize revenue from HSBC’s global banking franchise and distract bosses from seeking to profit from rising rates, a major UK-based institutional investor told Reuters. requested anonymity.

An Asian split could also drive up longer-term capital costs, effectively wiping out any quick gains from new listings, other investors and analysts said.

“If an Asian spin-off were to happen, we would consider it negative,” said Filippo Alloatti, chief financial officer at Federated Hermes. “A less diversified, less profitable HSBC would almost certainly be downgraded by the rating agencies.”

HSBC shareholders have repeatedly faced the prospect of a breakup in recent years, with disappointing results from UK, European and US companies weighing on its share price and management’s promises of double-digit returns for shareholders.

“Separation would undeniably damage a number of key elements of HSBC’s DNA in international business,” said Ian Gordon, banking analyst at Investec.

Noel Quinn, CEO of HSBC for two years, has been investing billions of dollars in Asia to drive growth, with a focus on wealth management, and has moved world leaders there.

But the timing of Ping An’s call, amid growing geopolitical tensions between the West and China, may encourage investors to consider more than just the financial forces at work.

Ping An counts state-owned entities Shenzhen Investment Holdings Co and Central Huijin Investment among its top five shareholders, with Shenzhen Investment Holdings the second largest owner of China’s largest insurer, according to filings by the companies.

HSBC did not comment on Ping An but defended its structure, saying in a statement it believed it had the right strategy and was focused on delivery. L2N2WR21M


Ping An said on Saturday he supports any reform proposals that could help HSBC’s long-term value growth.

HSBC shares have fallen 35% since Ping An first announced it had a 5% stake in HSBC in late 2017. Refinitiv data showed the insurer held an 8.23% stake in the British bank on February 11.

Financial breaks, such as the one pursued by London-listed, Asia-focused Prudential (PRU.L), haven’t generated much value for the parent company, Jefferies analysts pointed out.

Potentially large restructuring costs, lower network revenues, higher post-separation costs due to reduced scale advantages and, crucially, low valuations for UK domestic banks would eat away at any upside, analysts said on Friday. ‘UBS.

“A split may make sense, but it has to be balanced against the fact that a significant part of it is the result of HSBC’s global footprint bridging East and West,” said Justin Tang, chief executive. of Asian research at the consulting firm United First Partners. .

In 2016, HSBC decided to keep its headquarters in London, rejecting the option of moving its center of gravity to Hong Kong after a 10-month review.

HSBC last month suspended plans to buy back shares this year after reporting an unexpected hit to its capital as a cocktail of rising inflation, geopolitical tensions and economic weakness weighed on its earnings outlook. L2N2WO06P

The bank employs 220,000 people and serves approximately 40 million customers worldwide through a network spanning 64 countries and territories.

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Reporting by Anshuman Daga in Singapore, Selena Li in Hong Kong and Sinead Cruise in London; Additional reporting by Lawrence White and Iain Withers in London, Donny Kwok in Hong Kong; Editing by Richard Pullin, Elisa Martinuzzi and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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