HSBC’s promises won’t satisfy Ping An for long


HSBC Holdings Plc hopes to buy out dissenting investors with increased dividends and an expectation of higher returns. Promises made during Monday’s half-year results sent the bank’s shares up sharply, but shareholders agitating for big changes are likely to want more — and soon.

The London and Hong Kong-based bank is facing calls to break up from its largest shareholder, Ping An Insurance Group of China, in a bid to free faster-growing Asian companies from more heavily taxed and regulated Western parts. from HSBC.

To counter those calls, chief executive Noel Quinn gave new details of how its international, straddling the world setup is generating revenue that a dismantled HSBC would not capture. More than $1 billion of its global banking and markets business in the first half was Asia-based business from clients in the United States and Europe. Nearly half of that division’s nearly $8 billion in first-half revenue came from cross-border business. And in wealth and retail banking, international clients – those with assets in more than one country – generate twice as much revenue as domestic clients. A split from the group would probably sacrifice important parts of this activity.

Quinn also further detailed the costs a breakup would create: Additional capital and financing requirements; duplication of technologies and administrative expenses; potential credit rating downgrade and possibly higher taxes.

Good news on current performance and increased income due to rising interest rates helped Quinn make his case. It significantly beat revenue and profit forecasts and said the rate hike would boost net interest income by more than 16% this year and next, which was also much better than expected. It improved its return on tangible equity commitment to 12% or more from 2023, up from the previous commitment of 10% for next year.

The stock rose 6% because of this and the promise of a more certain dividend payout, which was one of Ping An’s main complaints. But nothing is set in stone in the markets. For HSBC, the next question is: what’s next?

Most of its revenue gains this year and next come from rising interest rates. But this is not a source of continued growth because the rates will not continue to rise. Moreover, in terms of profitability, the return target of more than 12% seems excellent for European investors compared to the 10% more promised by Barclays Plc or Deutsche Bank AG, for example, but investors in Asia are more likely to compare it to higher returns. available locally.

HSBC management thinks it can compete for more market share in commercial and retail businesses in places like the UK and China, but not in Hong Kong where it already dominates. In global trade finance it is already a leader but believes it can gain more market share and in asset management and insurance it could do more deals to get closer to being a Asia’s leading wealth manager.

She regularly moves more of her capital to higher yielding ventures. Wealth and personal banking accounted for just over a quarter of its equity at the end of 2021, and this will rise to over a third in the medium term. It is a company that offers returns in the mid-teens, compared to more than 10% for commercial banking and global banking and markets. It is also continuing its rebalancing towards Asia, which should see its share in the group’s capital increase from 42% to 50% in the medium term. This region offers returns for teens that are easily double that of North America and Europe, in part due to lower tax rates.

These arguments are well known to European and Asian investors – and can still be read as much to justify a break as to maintain the status quo. There is also the broader geopolitical question of how more polarized East-West relations in global politics might affect the future of international trade and capital flows. The simplistic answer is that growth rates are likely to be lower than in the past.

To be fair to HSBC, it wants to focus first on hitting its return target of 12%, which would be its highest profitability in more than a decade. Ping An and other investors have long awaited even this improvement. HSBC will have to start putting firmer numbers on its next step to really put an end to the debate about its structure. Although if Ping An really wants to force change, he will have to be much more public about how and why, which given questions about China Inc.’s involvement, could prove just as uncomfortable for the activist. only for the target.

More from Bloomberg Opinion:

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• HSBC’s new breakup plan still not very convincing: Paul J. Davies

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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