China sharpens the cleaver as a game is played to split HSBC

The view westwards from the top of HSBC Tower in Canary Wharf, from the chief executive’s office, is truly spectacular. There’s the vast Canary Wharf complex far below, and in the distance, the landmarks of the City and London’s West End. Linking them is the gleaming curve of the Thames. It really does take the breath away. Yet, when I once stood there with Stephen Green, the bank’s then chief executive, later Lord Green, his comment was that “it was not Hong Kong harbour.” There was a wistful tone to his voice. There and then, he was summarising the conflict that has dogged HSBC ever since it was founded in the late 19th century in the former British colony and grew into one of the world’s biggest banks. Is it Asian or British? Its headquarters are in London, but does HSBC’s heart really belong elsewhere? It’s a tension that has never gone away. HSBC was based in Hong Kong, until China took over when it relocated to London. Since then, there have been repeated suggestions "The Bank" might return. The last formal review, in 2015, concluded the headquarters should stay put, in London. Now, however, the issue has sprung to the fore again, with its biggest shareholder, Chinese insurance giant Ping An, calling for the bank to split into two: one business focused on the West and the other on Asia. Ping An owns 9 per cent of HSBC, a stake worth £9.2 billion ($11.52bn). It’s pushing for an emergency shareholder meeting to agree to list and base the Asian arm in Hong Kong, and what’s left to be separately listed and based in London. In theory, the request is driven by the fact that two thirds of the group’s $19bn profits last year originated in Asia. By focusing entirely on Asia, a locally headquartered bank would grow that regional revenue quicker. It's not that simple. Not only is HSBC Britain’s largest bank, it’s also one of the biggest companies on London’s stock market, with a value of £100bn (the group employs 220,000 people across 64 countries). Dividing the bank would strike a huge blow to London’s international prestige and its claim to be a leading global financial player – and it is also fraught with political symbolism. Ping An is 5 per cent-owned by the Shenzhen state. It cannot be coincidence that the insurer is making this move so soon after China’s security crackdown in Hong Kong. HSBC has been left dangerously, and somewhat impossibly, exposed, as a result – as a brand that both sides, East and West, communism and capitalism, covet. It's possible that the Chinese merely wish to see HSBC relocate the head office to Hong Kong, rather than break itself up. But even this is easier said than done: the bank is regulated by the Bank of England and its debt requires the company to be regulated in London. Ping An's holding is big enough to allow the Chinese investor to call a shareholder meeting itself. Instead it's seeking a stalking horse, preferring that other investors call the meeting and force a vote. This all points to game playing, that Ping An and its Chinese governmental friends are wishing to embarrass HSBC, to make the bank realise the importance of its heritage and the importance of keeping onside with China. All Ping An is saying, in true not-saying-much fashion, is: “We want a debate about the future of the bank. We want shareholders to participate in the debate and to propose solutions for HSBC. Ping An supports all reforms and proposals from investors that can help HSBC’s operations and long-term growth.” In other words, Ping An is not saying what it really thinks and is anxious to follow the Beijing diplomatic playbook, of wishing to keep on reasonable terms with everyone and not be seen to be taking the lead on anything. HSBC is stuck, accused if it does nothing, accused if it does. Do nothing and it upsets China; take Ping An seriously, heed its wish and it annoys the UK. This, at a time when the global backdrop is one of western frustration with China’s refusal to actively oppose Russia’s invasion of Ukraine. The counterargument to taking a cleaver to the bank is that HSBC is so successful because it straddles East and West. The bank works as a bridge between East and West, allowing Asian customers to reach western money markets. Destroy the link and the western bank becomes AN Other bank, without a USP, small versus the giant Americans; the eastern bank concentrates on Asia and there the nearest comparison is Standard Chartered, which does not possess HSBC’s western reach, is entirely Asia-focused and crucially, is not valued anywhere near as highly as HSBC. “HSBC Asia”, or whatever it is called, would still be subject to Hong Kong regulation, which mirrors the Bank of England. Plus, it’s not as if the Asian end is entirely China-oriented – HSBC has extensive operations across India and Australia, countries which are closer to the western way of conducting business than the Chinese. Again, this will be known to Ping An – it is not, after all, as though the Chinese company is coming to HSBC as a stranger, the insurer has been a shareholder for five years. It’s difficult not to escape the conclusion that what is really occurring here is that Ping An is following a favourite Chinese pastime and flying a kite. It does not do any harm to rattle HSBC’s cage, to remind it of where its allegiances lie, and who is the biggest owner, to reinforce who is boss. The ploy may too force HSBC to drill down and consider how it can produce greater returns for its investors. That’s no bad thing, either. But halving the bank seems improbable. If Ping An thought it was a serious runner, surely it would be saying so loudly and demanding the shareholders meet and be producing the evidence to back its claims. Inscrutability should not be mistaken for lack of certainty. Chris Blackhurst is the author of 'Too Big to Jail – Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century' published by Macmillan on June 9