HSBC Asia Spin-Off Proposal Rejected

Facts

• On Friday, a proposal to spin off UK banking giant HSBC's more profitable Asian operations was defeated at the bank’s annual general meeting. The "strategic reorganization" was one of the proposed reforms backed by the Ping An Insurance Group, HSBC’s single largest shareholder with 8% of stock.¹
• According to an HSBC spokesperson, Ping An was the only one of the bank's 50 largest shareholders to vote for the resolution, which the HSBC board had recommended against. The plan required 75% of shareholder support to pass.²
• Hong Kong-based shareholder Ken Lui led the resolution, arguing that the Asian divisions are being hampered by regulations in other jurisdictions. HSBC's scrapping of dividends in 2020, for instance, came at the behest of British regulators.³
• HSBC chair Mark Tucker, however, argued a split would "materially destroy value," while Chinese-owned Ping An argued it would improve valuation and ease concerns regarding how relations between China and the West would impact business.⁴
• The bank posted higher than expected quarterly profits earlier this week and restored its quarterly dividend. It has been selling off its divisions in Canada and France as part of a pivot toward more lucrative Asian markets.⁵
• Lui said he’d continue to fight for the proposed break-up, while Tucker claimed the vote "draws a line" under the discussion. HSBC is a major player in Hong Kong's financial sector, where it prints banknotes and where a third of HSBC's shares are owned.⁶

Sources: ¹Bloomberg, ²Reuters, ³CNN, ⁴FT, ⁵CNBC, and ⁶BBC News.

Narratives

• Anti-China narrative, as provided by Reuters. Ping An was hoping behemoth profits from Hong Kong could lure investors away from the watchful eye of Western regulators and place a banking powerhouse under the control of China, whose government owns a piece of the insurance company. But it evidently overplayed its hand, and if it still wants to own a regional bank, it’ll have to look elsewhere.
• Pro-China narrative, as provided by Asia Times. China may have lost the battle, but it will ultimately win the war over HSBC. As markets in the West slow down, those in Asia are surging ahead, so it’s only a matter of time before Chinese shareholders have the power to demand their businesses be freed from the irrelevant West's oversight. Since nearly 80% of HSBC’s profits come from Asia, it makes little sense to have the bank's most lucrative division weighed down.