HSBC increased the risks of closing its Asia unit when it turned down such an offer from shareholder Ping An Insurance Group, a source familiar with the Chinese insurer’s thinking said, adding the move would add $35 in value. Up to a billion can be unlocked.
HSBC, which makes the bulk of its sales and profits in Asia, came under pressure in April from its largest shareholder, Ping An, to explore options, including listing its core Asia business, to increase shareholder returns.
The detailed rebuttal described by a source with knowledge of Ping An’s thinking represents the investor’s most detailed pushback about HSBC’s strategy, and indicates Ping An’s intention to continue the controversy.
The details of Ping An’s internal discussions come after HSBC pushed back against Chinese investor proposals on August 1 when reporting its half-yearly earnings. Ping An has not publicly confirmed or commented on the break-up proposal.
HSBC said the break-up would mean a potential long-term impact on the bank’s credit rating, tax bill and operating costs, and would bring immediate risk in executing any spinoff or merger.
Ping An declined to comment, while an HSBC spokesperson said the bank had nothing to add to comments made by its executives last week.
While active investors sometimes acquire a stake in a large bank and face management over how it is run, this is unusual for a Chinese company like Ping An, whose top shareholders include state-backed entities. To take a proactive stance.
Ping An believes that a spin-off would generate an additional $25-$35 billion in market capitalization and issue more than $8 billion in capital, the source said, citing an “external” analysis.
The source declined to be identified due to the sensitivity of the matter.
HSBC’s current market capitalization is approximately $133 billion.
Responding to HSBC’s argument that the closure of its Asian business would affect global synergies, the source said HSBC would continue to be a major shareholder of the entity after the separation and the two sides could enter into cooperation agreements.
According to Refinitiv data, Ping An holds an 8.3% stake in HSBC, which is worth about $11.4 billion.
Shares of HSBC rose 0.6% on Thursday, while the benchmark FTSE 100 index fell 0.26%. Shares of the British bank have fallen by nearly a quarter since Ping An’s report on December 7, 2017, reported that it held more than a 5% stake in HSBC.
HSBC shares fall after Ping An stake rise: https://fingfx.thomsonreuters.com/gfx/mkt/gdpzyomlwvw/HSBC share.jpg
Asia is HSBC’s biggest profit centre, with the region’s share of the lender’s profit rising to 69% from 64% a year ago.
The dispute between HSBC and Ping An reflects the challenges facing the British bank as it attempts to navigate geopolitical tensions between the US, UK and China amid criticism from lawmakers in the West over the bank’s activities in Hong Kong. does.
HSBC chief executive Noel Quinn said on 1 August that the bank’s talks with Ping An “has been entirely around commercial issues”, with no political aspect.
The source said HSBC performed better than expected in the second quarter, but nearly all of its revenue growth relied on “a phased, short-term and uncontrollable interest rate hike cycle”.
The source added that the bank’s poor performance has not yet been “fundamentally addressed” and that it was in urgent need of a radical overhaul.
Dual-listed HSBC posted a pretax profit of $9.2 billion for the six months to June 30, up from $10.84 billion a year earlier, but trailed analysts’ average estimate of $8.15 billion compiled by the bank.
(Reporting by Selena Lee in Hong Kong, Lawrence White in London and Anshuman Daga in Singapore; Writing by Sumeet Chatterjee; Editing by Kim Coghill, Kirsten Donovan)
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