Hong Kong
CNN
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HSBC executives defended their strategy on Monday to frustrated shareholders in the bank’s biggest market, as Europe’s largest bank continues to face calls for a breakup.
At an informal shareholder meeting in Hong Kong, Chairman Mark Tucker and CEO Noel Quinn took questions from investors on topics ranging from how the bank is handling demands to overhaul its business to its purchase of the British arm of Silicon Valley Bank.
In prepared remarks, Tucker and Quinn each reiterated the board’s recommendation that shareholders vote against a resolution on the agenda of its annual general meeting in May that would require the bank to develop a plan to spin off or reorganize its Asian operations – the lender’s main source of profit.
Tucker said the board was unanimous in its opposition to the resolution, stating clearly: “It would not be in your best interest to split the bank.”
He said the board had previously considered a range of options to restructure the bank and concluded that such alternatives “would materially destroy shareholder value,” including dividends.
“Our strategy is working,” Tucker told more than 1,000 shareholders. “Our strategy right now is to increase dividends.”
Over the past year, HSBC has faced calls to separate its Asian operations from the rest of the bank.
Shareholders in Hong Kong, where HSBC is a mainstay in many retail investors’ portfolios, say the London-based lender’s performance has been dragged down by its companies in other regions.
Quinn responded to those complaints on Monday, saying that “our profits in Hong Kong and the UK are no longer being held back by underperformance in other countries. The group is performing well overall.”
Pressed later by a shareholder on the issue, Quinn said a split of the bank would result in a “significant loss of revenue” because much of its business relies on cross-border transactions.
Investors are also unhappy with HSBC’s decision to scrap its dividend in 2020, at the request of British regulators. They say that if the bank were to shut down its Asian operations, it would no longer have to expose Hong Kong shareholders to demands from other jurisdictions.
Hong Kong District Council member Christine Fong said she represented about 500 small shareholders who had been affected by the dividend cancellation.
“Street vendors, taxi drivers, teachers – they all relied on the dividend to pay their living expenses, like mortgage payments, insurance payments, tuition fees,” Fong told CNN.
“That’s why, three years ago, what HSBC did upset these small minority shareholders.”
Fong has now joined calls for shareholders to vote in favour of the proposed spin-off of the bank’s Asian business, despite the lender cutting its dividend in 2021, albeit to a lower level.
Ken Lui, a Hong Kong shareholder activist who drafted the resolution, reiterated his call for support ahead of Monday’s meeting.
The resolution will need 75 percent of the vote to pass in May, but “nothing is impossible,” he told reporters outside the meeting venue.
He, who said he personally owns a stake worth HK$100 million ($12.7 million), outlined his team’s plans to focus on “targeted outreach to institutional shareholders to present our case and gain their support.”
His group will also conduct a tour of 18 districts in Hong Kong “to tell HSBC shareholders that they finally have a chance to have their say and protect their rights by voting,” he added.
HSBC is also under pressure from its main shareholder.
Ping An (PNGAY), China’s largest insurer, owns an 8% stake in HSBC and has backed calls for the bank to rethink its structure.
In a series of statements released by the Chinese company last November, Huang Yong, chairman of Ping An’s asset management arm, said: “We will support any move, including a spin-off, that is conducive to improving HSBC’s performance and value.”
Since then, the insurance giant’s position has not changed, according to a person familiar with the matter.
The source told CNN that Ping An had asked HSBC to consider a reorganization, with the aim of increasing its valuation and simplifying its regulatory obligations around the world.
The insurer has not recommended a specific path forward but will support any move, including a spinoff of its Asian business, that could improve its stock performance or value, the person added. Ping An did not immediately respond to a request for comment on how it plans to vote at the upcoming shareholder meeting.
HSBC executives were also questioned Monday about why the bank bought SVB’s British unit after its U.S. parent company went bankrupt. The purchase was made for £1 ($1.20) last month, just days after SVB went bankrupt.
Critics have questioned HSBC’s ability to carry out adequate due diligence on SVB UK’s customers because of the speed with which the deal was concluded.
“Has HSBC looked at SVB’s customers in detail? For example, financial statements – whether they can repay the loan?” Fong asked.
Quinn and Tucker defended the acquisition as a good business opportunity that allowed the bank to gain hundreds of innovative startups as customers. They rejected the suggestion that management didn’t have time to do proper due diligence.
Tucker also addressed the recent turmoil in the banking sector, saying he did not expect an “immediate impact” on HSBC.
“After the collapse of a number of small regional banks and the takeover of Credit Suisse, the share prices of all banks fell,” he noted.
But he said he did not think the developments posed a “systemic risk” to the sector. “I expect a period of uncertainty” before nerves calm down, he added.
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