UK-based banking group HSBC is under pressure from its largest shareholder Ping An to split its business, Financial Times reported citing sources.
The Chinese insurance major wants to split HSBC’s Asian and Western operations.
Ping An has presented a demerger plan to the British bank, sources privy to the matter said.
The insurer’s rationale behind the move is that it will allow HSBC’s Asian business to be independent, make autonomous decisions and achieve higher profitability at lower capital requirements.
HSBC’s second top-ten shareholder told the publication that Ping An’s proposal is “pretty interesting idea”.
The shareholder noted: “For HSBC, it is existential. They are not in a tenable structure. You would not create this institution from scratch.”
Ping An opines that a demerger would give more options to shareholders on which parts of the bank they want to own.
Additionally, the insurer feels that it will gradually become more and more difficult for HSBC to balance between its Chinese and Western interests, people familiar with the discussion said.
“Ping An supports all reform proposals from investors that can help with HSBC’s operations and long-term value growth,” the insurer’s spokesperson said.
According to the sources, Ping An owns a 9.2% stake in the bank, which serves 40 million customers in 64 nations through 200,000 employees.
Off late, HSBC has been criticised for supporting China’s crackdown in Hong Kong, when it froze pro-democracy activists’ accounts.
“HSBC is in the least tenable position of any financial institution in the world on the US-China conflict. They are in a position where everyone hates them — the UK, France, the US, Hong Kong and China. I don’t see a path out of their current situation today and I don’t see the geopolitical tension getting better,” the second top-10 shareholder told the publication.
Bank of England’s decision to halt dividend payments after the Covid-19 pandemic began had also upset Ping An.
The insurance firm is disappointed that the majority of the bank’s earnings come from Asia, particularly Hong Kong but the bank is overseen by the UK regulators.
In response, HSBC said: “We believe we’ve got the right strategy and are focused on executing it.”
Notably, HSBC’s UK consumer business is ringfenced from the rest of the group and would continue to operate normally even after the demerger.