(Adds investor reaction, updates shares, changes dateline)
HONG KONG, May 3 (Reuters) - HSBC investors gave a
break-up proposal by its biggest shareholder a lukewarm response
on Tuesday, voicing concerns a split would prove complex with no
guarantee of raising returns.
Chinese insurance giant Ping An has called on
HSBC to explore options including spinning off its Asian
business, where it earns two-thirds of its pre-tax profits,
sources familiar with the situation said on Friday.
HSBC's Hong Kong shares closed up 2.6%, while its
London-listed shares were trading 2.3% higher at 1553 GMT. Both
bourses were closed on Monday for a holiday.
A break-up would jeopardize earnings from HSBC's global
banking franchise and distract bosses when they should be
looking to cash in on rising rates, a large UK-based
institutional investor, who declined to be named, told Reuters.
An Asian demerger could also lead to higher costs of capital
in the longer-term, effectively wiping out any quick gains
gleaned from new listings, other investors and analysts said.
"If an Asia spin-off were to happen we would regard it as
negative," said Filippo Alloatti, Head of Financials at
Federated Hermes. "A less diversified, less profitable HSBC
would almost be certainly downgraded by the rating agencies."
HSBC shareholders have grappled with the idea of a break-up
several times in recent years, as disappointing earnings from
UK, European and U.S. businesses weighed on its share price and
management's promises of double-digit shareholder returns.
"Separation would undeniably damage a number key parts of
HSBC's DNA in international trade," Ian Gordon, banking analyst
at Investec, said.
Noel Quinn, HSBC's CEO for the past two years, is plowing
billions of dollars into Asia to drive growth, with a focus on
wealth management, and has moved global executives there.
But the timing of Ping An's call, amid growing geopolitical
tensions between the West and China, may encourage investors to
consider more than just the financial forces at work.
Ping An counts state entities Shenzhen Investment Holdings
Co and Central Huijin Investment among its top five
shareholders, with Shenzhen Investment Holdings the second
largest owner of China's largest insurer, company filings show.
HSBC has not commented on Ping An but defended its
structure, saying in a statement that it believed it had the
right strategy and was focused on delivery.
Ping An said on Saturday that it supports all reform
proposals that could help with HSBC's long-term value growth.
HSBC's shares have shed 35% since Ping An first reported it
owned a 5% stake in HSBC in late 2017. Refinitiv data showed the
insurer owned an 8.23% stake in the British bank as of Feb. 11.
Financial break-ups, such as that pursued by Asia-focused,
London-listed Prudential, have not generated much value
for the parent, analysts at Jefferies pointed out.
Potentially large restructuring costs, lower network income,
higher post-separation costs from reduced benefits of scale and,
importantly, low valuations for UK domestic banks would eat into
any upside, UBS analysts said on Friday.
"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," Justin Tang,
Asian research head at advisory firm United First Partners,
In 2016, HSBC decided to keep its headquarters in London,
rejecting the option of shifting its center of gravity back to
Hong Kong after a 10-month review.
HSBC shelved plans last month for new stock buybacks this
year after reporting an unexpected hit to its capital as a
cocktail of rising inflation, geopolitical tension and economic
weakness dented its earnings prospects.
The bank employs 220,000 staff and caters to around 40
million customers worldwide through a network covering 64
countries and territories.
(Reporting by Anshuman Daga in Singapore, Selena Li in Hong
Kong and Sinead Cruise in London; Additional reporting by
Lawrence White and Iain Withers in London, Donny Kwok in Hong
Kong; Editing by Richard Pullin, Elisa Martinuzzi and Alexander