Ping An rejects HSBC's defence against spin-off

The Chinese firm's position underlines the continuing gulf between HSBC and its largest shareholder. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Ping An Insurance Group is not convinced by HSBC Holdings' case against a proposed spin-off of its Asia operations, arguing the lender is in need of urgent and radical change, according to a person familiar with its views.

The insurer estimates that a spin-off would generate additional market value of US$25 billion to US$35 billion (S$34 billion to S$48 billion), release US$8 billion in capital requirements, and save on headquarters and infrastructure costs, the person said. It believes that HSBC has emphasised only the downsides and challenges of spinning off the business.

The Chinese firm's position underlines the continuing gulf between HSBC and its largest shareholder. It indicates that Ping An is unlikely to relent in its campaign for change, heralding months of more uncertainty and turmoil for Europe's largest lender.

Ping An also argues that as HSBC Holdings will remain a major shareholder of HSBC Asia, both parties will continue to benefit from a global network, the person said. The insurer's view is that the cross-border wholesale banking revenues that HSBC says are at risk from any split include significant intra-Asia business, which would not be affected by a spin-off.

Many of its calculations have already appeared in a June 8 report by In Toto Consulting, which said the analysis was commissioned by "an independent third party". Other analysts have generally questioned the benefits of a split, citing issues like the likely complexity and costs involved.

"Debate about HSBC's structure rumbles on, stoked by largest shareholder Ping An, but as previously, we believe regulatory and strategic complications will prevent any material change," Bloomberg Intelligence analyst Jonathan Tyce wrote last week following HSBC's second-quarter results.

HSBC chairman Mark Tucker and chief executive officer Noel Quinn last week said the Chinese insurer's Asian carve-out plan was unworkable and posed a major risk to the London-headquartered company.

It would also put Hong Kong's place as a global financial centre at risk, with a break-up of HSBC potentially having a "negative impact" on the former British colony, Mr Quinn warned.

HSBC set out 14 reasons why changing the bank's structure was a bad idea, ranging from the length of time it would take - the bank reckons it to be as long as five years - to the loss of direct access to United States dollars.

The bank has also brought in advisers from investment banks Goldman Sachs and Robey Warshaw to advise on its options as it tries to rebuff Ping An's campaign.

Ping An's call to split up Europe's biggest bank has won some support among Hong Kong's retail investor base, which owns about a third of the bank. Some see it as a sure-fire way of preventing a steady stream of payouts from being cut off as it was during the height of the pandemic.

A testy meeting on Aug 2 with Hong Kong shareholders featured protests outside the meeting, calling on the bank to agree to a spin-off.

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