HSBC spin -off proposal Tracking: market pressure has increased greatly. Is there any advantage of spin -off?

The 21st Century Business Herald reporter Hu Tianzheng Shenzhen reported that since the media report, HSBC has been spinning for nearly half a year.

In April of this year, many media reported that HSBC's largest shareholder Ping An Group supported a proposal that HSBC asked HSBC to split the Asian business. The reason for the market to support the proposal includes: spin -off will generate additional market value of 25 billion to 35 billion US dollars, release $ 8 billion in capital demand; and geopolitical issues.

On August 24, Ping An Group held a mid -term performance conference. Deng Bin, chief investment officer of Ping An Group, said that as a long -term partner, Ping An hoped that HSBC would be better in the future. He said that the future of HSBC depends on the bank itself, but Ping An maintains an attitude of open support for any measures to improve performance and improvement.

Earlier on August 2nd, HSBC Group CEO Noel Quinn explicitly stated in the investor conference to oppose spin -off, saying that it costs high, and the time required for at least three to five years has a major risk of execution.

As the largest shareholder of HSBC Holdings, sources close to Ping An Group said that HSBC emphasized and significantly exaggerated the unfavorable factors and challenges of spin -off Asian business, but did not mention the benefits and long -term values ​​that may bring.

From a financial perspective, things will not become simple. In the balance of the pros and cons of HSBC, analysts have different views. The Barclays Bank estimates that spin-off or cause HSBC's total market value to shrink by 3%-8%, and at the same time brings $ 1 billion in costs. According to a report issued by Toto Consultation, the split of HSBC Asian subsidiaries may bring $ 26.5 billion in funds, which is equivalent to one -fifth of its current market value.

Call of spin -off from Old Mate

This is not the first time that HSBC faces the requirements of spin -off. After HSBC acquired Bank of Mitland in 1992, he moved his headquarters to London, and then listed in London and Hong Kong. In 2015, HSBC had debated whether he had moved his headquarters from London to Hong Kong. After a 10 -month review, HSBC decided to leave the headquarters in London in 2016 and rejected the choice to move the focus back to Hong Kong, the main profit center.

However, unlike the seven -year prospects, the proportion of profitability in HSBC in Asia has increased year by year, and Hong Kong is the largest market. Among the revenue of HSBC's $ 49.6 billion in 2021, about 52%came from the Asian market, and Asia accounted for about 65%of HSBC's pre -tax profit in the same period. In the first half of this year, Asia accounted for HSBC's profits by 5%to 69%year -on -year.

Ping An Group is the largest shareholder of HSBC, and it is also a powerful organization that supports this spin -off. HSBC's mid -term financial report showed that Ping An's shareholding ratio was 8%, second only to Berlaide's 8.3%. However, it is also reported that Ping An Group currently holds about 9.3%of HSBC.

Ping An and HSBC have been close to HSBC, and the relationship between equity has also been reversed. In 2002, HSBC acquired 10%of Ping An Group's shares. After helping Ping An to establish a background platform and improve risk management, HSBC sold all shares in 2012. The relationship between the two parties was changed in 2017, and the disclosure of Ping An Group's financial report showed that the group held 5%of HSBC's shares. Subsequently, when HSBC's stock price fell to 25 years in 2020, Ping An Group increased its shareholding ratio to 8%.

However, despite the close relationship, the differences between the two's ideas and cultural differences are becoming more and more obvious.

According to people familiar with the matter, Ping An Group believes that an independent Asian company listed in Hong Kong will have higher profitability, lower capital requirements and greater decision -making autonomy.

Given that HSBC is located in London and is mainly regulated by the UK, the main source of profit is in Asia, especially Hong Kong, and the bank is vulnerable to risks.

In addition, people familiar with the matter added that Ping An's performance on HSBC was inferior to other banks focusing on Asia and the suspension of dividend to disappointment during the epidemic.

On April 1, 2020, HSBC Holdings announced that it was affected by the global epidemic, and the financial market fluctuations increased. HSBC Holdings had suspended the fourth dividend of 2019 and the first three dividends in 2020.

Both sides consciously make sense

Facing the spin -off proposal, Mark Tucker, chairman of HSBC Group, rejected the spin -off requirements at the shareholders' meeting held in Hong Kong in early August, saying that the group's strategy and performance were satisfied. "We believe that our strategy is correct and focuses on implementing it." Mark Tucker said that implementing this strategy is the fastest way to generate higher returns and maximize shareholders' value. Noel Quinn also said that the Asian spin -off plan is not feasible and constitutes a major risk to the company.

HSBC also listed 14 reasons at the same time. From IT infrastructure, it takes 3 to 5 years of length and needs to obtain regulatory permits from governments in the world. Mark Tucker said that spin -off will be an extremely complicated action, and spin -off also means that the bank's credit rating, tax form and operating costs may be hit for a long time, and it brings direct risks when performing any spin -off or merger.

In addition, HSBC said that the most serious problem is that if the Asian headquarters to Hong Kong, its US dollar settlement license may be revoked and it is difficult to get a new license. Since 2000, HSBC has been the only US dollar settlement institution in Hong Kong and one of the world's five major cross -border transactions.

Noel Quinn said that from customers to employees, international connections are the core of HSBC's entire value claim and help us improve their return. "Our judgment is that other structural choices will not bring higher value to shareholders. On the contrary, they will have a significant negative impact on value." But in the eyes of marketpers, the above reasons may not be convincing. An international financial expert said that the US dollar did not set up a liquidation bank overseas. Although HSBC is the only US dollar settlement institution in Hong Kong, HSBC Hong Kong has no US dollar liquidation license. It has always been through HSBC to handle business and pay for agency costs. Therefore, spin -off of Asian business will not cause HSBC Hong Kong to lose this function.

At the same time, people familiar with the matter told reporters that Ping An Group does not agree that the spin -off will take too long, the cost is too high, and damage its global network income. At the same time, the bank's recent income growth depends on the stage, Better, uncontrollable interest rate hike cycle. HSBC's poor performance has not been fundamentally resolved, and urgently needs to be completely changed.

Compared with other regions, HSBC's profitability in other parts of the world is slightly inferior. Analysts pointed out that HSBC's global network increased costs without bringing enough benefits.

According to Bloomberg report, compared with the same industry, the valuation multiple of HSBC Asia -Pacific business is at a low level in a reasonable category. The market value of the Asia -Pacific business has room to increase 30 billion US dollars. At the same time, the annual net profit of the HSBC Asia -Pacific business may reach $ 11 billion.

"HSBC only emphasized and obviously exaggerated the disadvantages and challenges of splitting the Asian business." The person said, but did not mention the huge benefits and long -term value that could be created for spin -off.

In addition, sources said that Ping An and some small and medium-sized shareholders hope to improve the return on shareholders of HSBC, and it is very flexible in terms of method-the possibility includes splitting the Asian business of HSBC or only splitting the Asian retail business. The spin -off company can continue to be part of HSBC and use its global background business through internal agreement.

According to sources, the call for Disclosing HSBC has been supported by the Hong Kong retail department of the bank. If the split is successful, the management of the Hong Kong or Asian departments may have more space in terms of decision -making.

Small and medium shareholders still have to look at dividends

Ping An Group is not the only major shareholder who pointed out this time. It is understood that in the top 20 major shareholders of HSBC, some of them also proposed spin -off demands.

"HSBC is very concerned about Ping An and all of our shareholders." Noel Quinn said that HSBC's performance has not reached its due level in the past 10 years.

At present, HSBC's stock price has rebounded about 85%since it has hit the 25 -year low in September 2020.

Rising interest rates, increased net interest margins, coupled with cost control and low expectations, HSBC's business performance in the first half of the year exceeded expectations. HSBC's pre -tax profit in the second quarter was $ 5 billion, a decrease of 1%from the previous quarter; the adjustment of the pre -tax profit after adjustment increased by 13%year -on -year to $ 6 billion, more than $ 4.96 billion analysts.

At the performance conference, HSBC promised to restore the payment quarterly dividend in the early 2023 and distribute more dividends. At least 12%next year.

Noel Quinn said that HSBC's goal is to restore the dividend to the level before the new crown epidemic as soon as possible.

Citi Studies stated that HSBC Holdings's second quarter performance was the strongest among Hong Kong bank stocks, and the guidelines provided were far exceeding market expectations. It is expected that the return rate of shares in 2023 reached 12%, which means that the dividend payout rate exceeds 7%.

In 2020, HSBC issued a dividend, with a cash of each share of $ 0.15. In 2021, HSBC resumed dividends, but reduced the annual dividends from 4 to two times. The cumulative dividend of $ 0.25 throughout the year was reduced by nearly 50%.

TOTO CONSULTANCY calculated in a report on June 8 that the split of HSBC Asian subsidiaries may bring $ 26.5 billion in funds, which is equivalent to one -fifth of its current market value.

The report shows that the other two solutions that may benefit shareholders are that HSBC spin -off the Asian business, or only the IPO of the Hong Kong retail business.

Asheefa Saraangi, managing director and founder of Toto Consultation, said that HSBC's possible wise approach is to in -depth discussions whether it is necessary to carry out more radical reorganization to ensure that HSBC not only survives, but also flourish for a longer period of time. Although spin -off is expensive and complex transactions, they can release value and accelerate the growth of the spin -off subsidiaries and the remaining companies, thereby bringing long -term benefits to the company's interests.

The Barclays Bank estimates that spin -off may shrink the total market value of HSBC by 3%to 8%, while bringing billions of dollars in expenses. Morgan Chase believes that major changes will lead to "high -cost reorganization, the termination of the cost of corporate center, the loss of income/market share, the strengthening of regulatory review, and the potential capital and financing unqualified effects." However, Creditette analysts believe that splitting will bring the market value of HSBC, which will bring a positive impact on HSBC's market value similar to that of Baocheng's division of its Asia and the United States.

At present, HSBC has invested billions of dollars to Asia to promote growth.Noel Quinn said that profit expectations are the best returns in the bank in 10 years and verify their international strategies.HSBC will focus on accelerating the reorganization of the United States and European business and will rely on its global network to promote profit growth, rather than splitting."The result of these measures is that the bank's risk -weighted asset reduction plan has a cumulative scale of $ 114 billion, and it is expected to save at least 120 billion US dollars by the end of this year." Noel Quinn added that the release of funds will be used in the field of investment advantage.Mainly concentrated in Asia.

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