Europe’s most valuable bank, gets most of its money from Asia, but is headquartered in the UK. Now its main shareholder, the Chinese Ping An Insurance,
is pushing for strong action to rectify this unwieldy arrangement, including a potential fallout from Asian activity.
HSBC is embroiled in a major restructuring effort to steer its business more towards Asia, which accounted for 65% of pre-tax profits in 2021. Slow progress towards that goal – and a share price that remains mired below Pre-pandemic levels, unlike some major Asian market rivals like Singapore’s DBS, could be a factor spurring demands for more radical action from Ping An, which owns around 8% of the company.
However, geopolitics lurks in the background: as relations between China and Western democracies have deteriorated, HSBC has increasingly found itself in the crossfire. When the bank has acted to appease authorities in Hong Kong or mainland China, such as expressing support for Hong Kong’s draconian national security law in 2020, it has clashed with Western politicians. When cooperating with the US investigation of Huawei for sanctions violations, Chinese state media launched the attack.
An arrangement less solidly anchored in the no man’s land between West and East – or with different and separate positions on either side of the trenches – therefore has a certain logic. But if the goal is to insulate a Hong Kong-based Asian HSBC from Western political risks, a split would be a partial solution at best and would do little to protect the new company from the thorniest issues involving US sanctions. current and future.
A split, if it does eventually materialize, could help solve some of the more prosaic or small-scale regulatory issues that the bank’s distorted east-west structure creates. Ping An was particularly angered, according to a Financial Times report citing unnamed sources, by the dividend cut imposed on HSBC during the pandemic by UK regulators. A separate Asia-focused Hong Kong-based company might have taken a different approach, given the pandemic’s less devastating toll on most major East Asian economies and their various political constituencies.
When it comes to the biggest and hairiest elephant in the room, enforcing US and EU sanctions, a separate Asian company wouldn’t provide much cover. HSBC’s massive trade finance business and other cross-border operations remain heavily dependent on access to the global dollar system. Western governments responded to Russia’s invasion of Ukraine by imposing severe restrictions on trade, including on high-tech exports and imports of Russian oil. Any financial institution that violates these sanctions — or, potentially, future sanctions against China in the event of an invasion of Taiwan — risks being cut off from the dollar payment system by US regulators.
And while some recent events could shake the dominance of the dollar, i.e. Western moves to freeze Russian reserve assets, others could help shore it up further. Weaker growth in demand for yuan-denominated assets over the next few years looks likely as US bond yields soar, Chinese growth faces increasing cyclical and structural headwinds, and China’s central bank acts to support its economy.
Two different HSBCs, both more directly beholden to different political constituencies, might find it easier to please certain shareholders and defuse public relations disasters of the more subdued variety. The greatest political risks, however, would remain.
Write to Nathaniel Taplin at firstname.lastname@example.org
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