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HSBC prepares defence against Ping An’s break-up demands 

 April 10, 2022

HSBC plans to warn its largest shareholder that its demand to split the bank will be costly, will take years to complete and frighten some of its major customers.

The 157-year-old bank has hired Goldman Sachs and Ruby Warsaw to come up with a detailed defense strategy, as it opposes Chinese insurance company Ping Ann’s call to divide its operations in Asia and the West, said people familiar with HSBC executives’ thinking.

Ping Ann, which owns around 9.2% of HSBC, started a Public campaign Last month, arguing that the bank may no longer be able to safely navigate U.S.-UK-China geopolitical relations.

The insurer became frustrated by the bank’s share price, by cutting a dividend that was anticipated in the wake of the epidemic and accusing executives of repeatedly missing out on financial targets, This was reported by the Financial Times.

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But HSBC’s senior management plans to build a case where the group split will destroy value, instead of creating it, the same people said.

The bank’s senior ranks seek to argue that a split would require a redemption of billions of debt-absorbing debt, would require regulatory approval in the UK, US, Hong Kong, Singapore and China and would take at least two to three years, distracting management from its slow turnaround efforts anyway.

Managers will also warn that the liquidation of HSBC’s 64-state network will result in the loss of large multinational customers such as Unilever and GlaxoSmithKline, who rely on it to move money around their remote operations.

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Such companies can be wary of relying on China’s central bank for financial support and their data is stored in China or Hong Kong, the bank will say.

Similarly, executives will argue that HSBC’s global trade operations, Top-10 Forex trading and leading dollar clearing operations all require a smooth global network, which could be undermined by a split between Hong Kong and London-listed entities.

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In discussions with HSBC’s board, Ping Ann used The separation of the insurance company Prudential As a model, claiming that its three independent units – Jackson National, Prudential Plc and M&G – are now worth $ 5 billion more individually than as part of one group in 2019, said people familiar with its position.

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“HSBC has three unique businesses and this liquidation will destroy the value of its network,” one senior official told FT in response. “Splitting an insurer with local customers may work, but not global banking activity.”

The bank will challenge Ping Ann to come up with a technical plan on how the liquidation will be carried out, with sufficient details to gain regulatory approval.

“The ball is in their court,” said another person close to the bank.

Ping Ann’s campaign is led by James Garner, its vice president of capital markets, who is responsible for all the investment and who previously worked at HSBC and Morgan Stanley as an analyst covering insurance companies, including his current employer.

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“The engagement has not been at the level and intensity that satisfies Peter [Ma, Ping An’s founder and chair] Or his senior staff, “said a man familiar with the meetings between the two sides.

“They feel ignored. And Peter himself is under pressure from his shareholders and the regulator on insurance in China, who are worried about the lack of profits,” after the Bank of England banned HSBC from paying dividends in 2020, which was then only half the previous level. In 2021.

While HSBC chairman Mark Tucker has a good personal relationship with Ma Mimyo who has run the Asian insurance company AIA since joining HSBC in September 2017 the bank’s share price has fallen by 33%, reaching a 25-year low in September 2020.

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Once a strategy is formulated, HSBC senior executives will try to resolve the dispute behind closed doors, said people familiar with the program.

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Tucker and HSBC CEO Noel Quinn will likely offer to speed up their cost-cutting plans, which lagged behind schedule and were criticized by Ping Ann at meetings.

At the end of 2021, the bank employed 219,697 employees, a decrease of only 15,000 from February 2020 When Kevin said He expected the number of workers to fall by about 35,000 within three years.

The program was suspended for three months at the beginning of the epidemic, but yes Restarted June 2020. During the past year it has removed only 6,362 full-time positions and increased the number of contractors by 500 to 6,192, according to its annual report.

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Parts with low performance on HSBC’s network will be re-inspected and put up for sale, as will what is left of its loss-making retail business in the US, after Sold most of its branches May last year. This Agreed to sell Its French consumer lender a month later and could look for more opportunities to sell outside of Asia.

Managers may also consider whether some of its more lucrative retail operations in one country can be partially listed as an alternative to liquidation, but the idea has been shown to be controversial within the bank.

In the discussions, Ping Ann cited the example of Hang Seng Bank, which is partly registered in Hong Kong but owned by a majority of HSBC. Hang Seng has a market capitalization of $ 34 billion and is traded at a price-to-earnings ratio of 20.09 compared to 10.65 for the HSBC Group.

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HSBC could offer Mama or another Ping Ann manager a seat on its board, said people familiar with the bank’s plans. However, this may turn out to be complicated because both companies compete in insurance in certain markets.

In addition, a session would require regulatory approval in the UK and Hong Kong, and access to non-public information on HSBC’s strategy and financial performance would limit Ping Ann’s ability to buy or sell shares.

HSBC, Goldman Sachs and Robbie Warsaw refused to comment. Ping Ann said it would “support any proposal to improve HSBC’s value and improve its business management” and wanted “shareholders to participate in the discussion and offer solutions”.

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Another report by Aresh Masudi

HSBC prepares defence against Ping An’s break-up demands Source link HSBC prepares defence against Ping An’s break-up demands

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