HSBC Holdings edged higher in trading on Tuesday after Ping An urged the bank’s board to spin off its Asia business in a bid to improve returns.
"That Asia makes up the majority of HSBC's revenues suggests that a spin-off may be logical, but it needs to be balanced by the fact that a significant portion of that is the result of HSBC's global footprint bridging East and West," said Justin Tang, head of Asian research at investment advisory firm United First Partners, told Reuters.
HSBC, Europe's largest bank, is under mounting pressure as Ping An argued that an independent Asia business listed in Hong Kong would have higher profitability, lower capital requirements and more autonomy to make decisions.
Ping An wants HSBC to undertake an overhaul that would result in the market giving the bank more credit for its large Asian business, and make those operations less beholden to regulators in London.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "HSBC shareholders are pretty sanguine today about the calls for the bank to be split up and its Asia business hived into a separate entity with shares rising.
"The bank’s stated determination to continue its pivot to Asia while also spanning the world, appears to have reassured shareholders that there won’t be an immediate change of course following demands from the bank’s largest shareholder, the Chinese insurance giant Ping An.
"If anything the demand for a more intense focus on Asia under a separate entity, is a vote of confidence in the steps management have already taken to boost growth by selling its French retail operation, and the US mass market business and ploughing the capital being released into historically stronger performing regions in Asia.
"But there is a risk surging COVID cases in China could take their toll with the bank already having experienced reduced equity market activity, wealth management slowdowns and closed branches after outbreaks in Hong Kong. China’s beleaguered real estate sector is also a continuing headwind for the bank, which a separate Asia focused entity would be particularly susceptible to."
The Financial Times reported that Ping An has expressed frustrations particularly with the Bank of England’s direction that UK banks should not pay dividends at the start of the coronavirus pandemic.
Hong Kong’s government, which had made no move to limit dividends of the banks it regulates, said it would welcome HSBC returning its headquarters to the city, according to media reports.
"We don't think that constructive shareholder engagement can be bad for the stock price," UBS analysts said in a report on Friday.
Ping An, which owns an 8.2% stake in the lender, had also threatened to vote against the bank’s new remuneration policy as well as the re-election of several board members ahead of its annual meeting. However, 95% of shareholders voted in favour of the resolutions.
The London-headquartered bank, which traces its roots to Hong Kong and earns almost two-thirds of its pre-tax profit in Asia, has employed this dual focus strategy for more than a century.