HSBC Holdings successfully fought off a breakup campaign by disgruntled Asian investors in recent years. Now, it has announced a restructuring along almost the same east-west lines. The obvious question is why? It says it is designed to create a simpler, more efficient and dynamic company. However, it looks a lot like the bank is also facing up to the political reality of the growing schism between the US and China.
A new structure would not dissolve HSBC’s geopolitical challenges, but it could give the bank better options to respond quickly if things worsen.
HSBC spent 2022 battling to convince shareholders of its strength to provide a financial bridge between hemispheres built on the twin pillars of its UK and Hong Kong banking units. Its largest investor, Ping An Insurance Group, had backed calls to spin off its Asian business. Both sides stuck to financial arguments: Ping An said shares in an Asian bank would trade at a higher valuation, while HSBC said separating would mean extra costs and capital and lost cross-border revenue. Still, the political subtext was always apparent.
Illustration: Louise Ting
The bank ultimately won a shareholder vote on the breakup question at its annual meeting last year. Since then, Georges Elhedery has taken over as chief executive officer from Noel Quinn with a mandate to further streamline the sprawling global lender. HSBC would not give details on the financial benefits of its restructuring until its full-year results early next year, although analysts are expecting cost cuts worth hundreds of millions of US dollars.
Savings would come from collapsing layers of its matrix of geographical and product managers, the same playbook that Citigroup is following. Elhedery’s pitch to investors would focus on freeing its UK and Hong Kong banks from wider global distractions so they better compete in their domestic retail and small company markets. However, just as significant is the East-West split in its large commercial banking operations: Big company clients in Europe, the UK and the Americas would come under the newly merged corporate and investment bank, while similar clients throughout Asia-Pacific, the Middle East and North Africa would be overseen from Hong Kong.
HSBC has maintained that it saw no Chinese government influence behind Ping An’s breakup campaign, but the political sensitivities of having two feet planted equally in Greater China and the UK are undeniable. China is just as concerned about the US’s increasing exploitation of global reliance on the US dollar to advance its political aims as the US is about China’s ownership of or access to key computing and communication technologies.
The episode that most exposed HSBC was when the US used its direct internal supervision of the bank’s activities — a legacy of HSBC’s punishment for Mexican money laundering breaches in 2012 — to extract information about a Chinese client, telecoms firm Huawei Technologies. HSBC had no choice but to give up details that led to Huawei’s chief financial officer — the daughter of its founder — being arrested in Canada in 2018.
The fallout left HSBC scrambling to placate governments and corporations in east and west. The political standoff between the US and China has not improved. If Donald Trump returns to the White House next January, things could get even trickier for any businesses caught in between.
The story HSBC tells about its restructuring is solely about financial efficiency and shareholder returns, rather than geopolitical defenses. That is understandable: Even talking about the latter risks causing problems more than providing answers. Ultimately, HSBC wants to remain a globe-striding financier of trade and investments between and within hemispheres.
Moreover, creating a cordon sanitaire between eastern and western corporate information would remain hard even under the new structure. HSBC would need a single, central risk-management and compliance function for its own safety, although this must also adhere to data sharing and protection rules in every country where it operates.
Nevertheless, the planned new structure does look like one that would make it easier to cleave HSBC in two should it become politically necessary some day. That would not ever be a costless option — but it is wise to be ready, just in case.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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