HSBC has this global operation commitment strategy. One of them is break-up. Theoretically, it could strengthen the bank’s commitment in its global operation, but analysts do not agree. Break-up of the bank could inflict massive cost and risk. Worse, this strategy may not deliver the desired valuation for the bank’s prized Asian assets.
Based on the media, Ping An, China’s biggest insurer, is HSBC’s largest shareholder. It owns 8.2% stake. The firm expects the London-listed bank to spin off its Asian operations. Ping An believes that it could lead to high profit, lower capital requirements, and high valuation for the shares. It includes the £8.5bn of owned shares.
Barclays analysts also added that either break-up, lower earnings, and sizable upfront could create a loss of value for HSBC’s shareholders. Plus, an analyst at Credit Suisse argued that a spin-off of the Asia-Pacific operation creates value. But it could turn into a complex, risky, and lengthy.
Ping An is not the first insurer suggesting break-up strategic restructuring. It is quite successful in its international network, especially in its Hong Kong operations. But the offset of complex networks often plays as independent silos. Its returns lagged major rivals for years allowing it to remain below 10% target.
Asia accounted for 52% of group revenues and 65% of pre-tax profit. Few years ago in 2007, shareholder Knight Vinke Asset Management suggested HSBC not only shut down U.S. operations but also spin off Asian operations. This was to unlock shareholder value. Few years later in 2016, HSBC held a 10-month review about the location of the bank’s headquarters. The discussion touched other problematic sectors, assessing regulations and how to unlock value by restructuring. Then the bank chose London.
