Customers use automated teller machines (ATM) at an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb 16, 2019.
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Shares of HSBC Holdings fell over 3% in Hong Kong on Friday after reports that its top shareholder Ping An Insurance might be looking to cut its stake in the British bank.
Despite the fall, HSBC’s share price is still at its highest since August 2018, trading at about 68 Hong Kong dollars per share.
Citing people familiar with the matter, Bloomberg reported the Chinese insurer is looking at possibly reducing its stake in the bank further “as it seeks to reduce its $13.3 billion position in Europe’s largest lender.”
There are several options including “further share sales, similar to the $50 million sale it disclosed last week.”
The sale marked the first disposal of shares from Ping An since it backed a 2023 shareholder motion that sought to spin off its Asia business and establish fixed dividends. That motion was eventually defeated.
“A sovereign wealth fund or ultra-rich investor in the Middle East taking a sizable stake is another possibility,” Bloomberg said, citing unnamed sources.
Noel Quinn, chief executive officer of HSBC Holdings Plc, right, Mark Tucker, chairman, center, and Peter Wong, deputy chairman, during the bank’s shareholders meeting in Hong Kong, China, on Monday, April 3, 2023. HSBC’s senior executives faced its Hong Kong shareholders from retirees to taxi drivers as the lender seeks to fend off a push in Asia to split the bank. Photographer: Paul Yeung/Bloomberg via Getty Images
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Banking giant HSBC on Friday defeated a proposal, backed by its largest stakeholder Chinese insurer Ping An, to consider spinning off its Asia business into a Hong Kong-listed entity.
Investors cast their votes on the proposal at the bank’s annual general meeting in Birmingham in central England, but its supporters ultimately failed to get the majority required.
Resolution 17 and 18 on the agenda, tabled by a group of investors led by Ken Lui, called for a “strategic review” of the company, including the spinoff proposal and fixed dividends. These motions had received support Ping An Insurance, which expressed similar views to Lui in a statement.
In March, HSBC advised investors to reject the two resolutions, a stance that was supported by investor advisory firms ISS and Glass Lewis. HSBC Chairman Mark Tucker warned at Friday’s meeting that a proposal to split up the bank would undermine its global strategy and hamper its revenue.
“The indicative results of all votes today are fully in line with the board’s recommendations. Based on these indicative results, resolutions one to 15 have passed and resolutions 16, 17 and 18, which were requisitioned by shareholders, have failed,” Tucker said.
“I’m delighted that the large majority of HSBC shareholders have voted overwhelmingly to support the bank’s strategy and draw a line under the debates on the structure of the bank. The votes will now be scrutinized, validated and the final results will be released after the meeting,” he added.
Like Barclays’ annual investor meeting in central London earlier this week, HSBC’s AGM was disrupted by environmental campaigners, with protestors repeatedly and vociferously challenging the bank’s climate strategy.
Earlier this week, HSBC reported a better-than-expected set of first-quarter results and restored its quarterly dividend.
Speaking to CNBC’s Emily Tan on Friday ahead of the meeting, Lui said that “some of the actions I took put pressure on management, so it delivered a better-than-expected report. I’m satisfied with the performance this quarter. We’ll continue to monitor the conduct of the management.”
However, HSBC CEO Noel Quinn has pushed back on Lui’s resolutions, previously telling CNBC on April 14 he does not believe that fixed dividends are “wise corporate governance and wise capital management for a bank.” He said a dividend payout ratio is more balanced and “is the model of the industry.”
Quinn said management is already improving the performance of the bank and is on a “very good trajectory.”
The “special resolutions” require 75% of votes to pass, but Lui expressed confidence.
“When I submitted these resolutions, I was very confident that both of them will be passed because they can stimulate the share price to go up. As a shareholder of HSBC, even if you don’t support it, you also shouldn’t vote against it,” he said.
Michael Makdad, senior equity analyst at Morningstar, said before the vote that he did not personally expect the resolutions to clear the 75% hurdle. But he told CNBC’s “Squawk Box Asia” that the proposals reflect a longer-term issue “that’s not likely to go away for HSBC.” He predicted the bank will continue to see activist or leading shareholders putting pressure on management going forward.
Makdad said a lot of the pressure comes from the fact that HSBC operates in many countries around the world, but derives most of its profitability from its Hong Kong and the U.K. units.
“It would make sense to simplify the structure. However, as a bank, it’s not easy to simplify it,” he said.
He pointed to HSBC’s attempts to sell its French retail unit as well as its Canadian operations. “If that goes through, that’ll be great. But all of these things take time, and it’s not simple.”
In light of the banking sector’s recent woes in the U.S. and Europe, Makdad was quick to add that these do not mean that HSBC is a troubled bank.
“It’s just a bank that has some great operations [in] Hong Kong, and other places. It has some very profitable, very strong operations. And then it has other operations that maybe it doesn’t need,” he said.
Trouble is brewing at HSBC — the largest bank in Europe is facing renewed pressure from its biggest shareholder, Chinese insurer Ping An, to restructure its business. But Morgan Stanley is sticking to its bullish stance on the U.K.-based bank, calling HSBC its “top pick” in the sector. Ping An is doubling down on its call for HSBC to spin off its Asia business, saying on Tuesday that HSBC has “fundamentally failed to address key business model challenges.” HSBC hit back at the proposal, claiming that a ” structural reconfiguration” of its Asia business would result in “material loss of value” for shareholders . Morgan Stanley is looking past that noise. Instead, it’s focused on HSBC’s fundamentals. “Improving China GDP growth post-reopening, plus sustained higher U.S. rates, means investors should focus on HSBC’s improving [return on equity],” the bank’s analysts, led by Nick Lord, wrote in a note on April 18. While rising interest rates have improved HSBC’s net income margins, the benefit of higher rates on returns hasn’t been reflected in its share price, the analysts added. “As ROE improves, we see HSBC returning up to 12% of its market cap in the next 12 months to shareholders. Valuation looks compelling,” the bank added. It noted that though HSBC’s share price has been affected in recent weeks by turmoil in the global banking sector and a more challenging economic outlook, HSBC has “strong capital and liquidity ratios” and is “exposed to some of the faster growing parts of the world.” Morgan Stanley expects HSBC to deliver “accelerating” capital returns, with 50% of 202 earnings paid out in dividends and share buybacks amounting to $3 billion in 2023. “Over the next 12 months, HSBC could return 12% of its market cap to shareholders. Further out, we see not only the 50% dividend payouts, but annual share buybacks of $8 billion in 2024/25,” according to Morgan Stanley. Shares of HSBC are up nearly 16% this year, but Morgan Stanley expects more upside ahead. The bank has a price target of 65.2 Hong Kong dollars ($8.30) on the Hong Kong-listed shares of HSBC, which represents potential upside of 15.6% to its closing price on Thursday. HSBC’s future Shareholders will vote on Ping An’s proposal at the bank’s annual general meeting on May 5. The proposal has so far failed to attract support from other large institutional shareholders. Advisory firm Glass Lewis, a shareholder, also recommended that investors vote against the proposal, saying it’s “not in shareholders’ interest.” — CNBC’s Michael Bloom contributed to this report.
