HSBC investor Ping An publicly calls for disruption and ‘aggressive’ cost cuts

For the first time, HSBC’s largest shareholder, Ping An, publicly called on the bank to divest its Asian business and urged the global lender to be “much more aggressive” in cutting costs by cutting jobs.

Michael Huang, President of Pingan Asset Management, told the Financial Times: “We will support all initiatives, including a spin-off, that are conducive to improving HSBC’s performance and value.”

He added that it was ‘urgent’ for HSBC to go further in cost-cutting to reduce spending, which he said was well above that of rivals, and said a number of senior bankers did not have enough work experience in Asia.

Huang’s comments mark the first time the Chinese insurance company has spoken publicly about HSBC since it appeared this year that he had privately urged the bank to spin off its Asian operations to boost yields. Ping An has a stake of more than 8% in the bank.

HSBC, led by Chairman Mark Tucker, has pushed back against splitting off its Asian business, saying it would be too complicated and entail huge costs.

A person familiar with Ping An’s thinking said the insurer was still pushing for a split and talks were “ongoing”. Ping An began pushing for a breakup in February, complaining of years of lender underperformance and the cancellation of HSBC dividend during the pandemic.

Ping An’s call for further cost cuts and a greater allocation of resources to Asia are among moves the insurer says will improve HSBC’s returns, though he refrained from calling publicly to a breakup.

The bank’s return on tangible equity, which Ping An said averaged 7% over the past five years, lags its rivals. Huang said HSBC posted returns of 8.3% last year, which was “well below” the 12.3% average for its peers.

Investors hold placards ahead of an informal HSBC shareholder meeting in Hong Kong in August © Paul Yeung/Bloomberg

Huang added that HSBC should “be much more aggressive in cutting its costs drastically”, noting that its cost-income ratio of 64.2% is 13 percentage points higher on average than its competitors.

Expenses could be reduced “by reducing its operating costs such as labor and IT” as well as the cost of its global headquarters.

“This is the most important, urgent and necessary action for HSBC to improve its business performance, reducing costs and increasing efficiency, especially in a context of slowing industry growth. global financial institution,” Huang added.

HSBC aims to cut $5.5 billion in costs by the end of this year and another $1 billion next year.

The bank unveiled its “pivot to Asia” strategy in 2020, but Huang said “the market hasn’t seen any substantial action or meaningful results in the past two to three years,” calling for more transfer. of resources to Asia.

HSBC also said in April 2021 that it would move four of its most senior bankers to Hong Kong. These included: Greg Guyett, who at the time was co-head of global banking and markets; Nuno Matos, Managing Director of Wealth Management and Personal Banking; Barry O’Byrne, Managing Director of the World Commercial Bank; and Nicolas Moreau, Head of Asset Management.

However, Huang said “this move has not been completed.” Three of the bankers moved away but Guyett decided to stay in London.

“To our knowledge, three of the four CEOs of HSBC’s global businesses have only one year of work experience or less in Asia,” he added.

He said HSBC should take “concrete steps” to “strengthen its position in the Asian market and seize opportunities arising from the rapid development of the Asian market, while balancing its global financial model with cross-border systemic and geopolitical risks. “.

HSBC said in a statement it was on track to meet all of its financial targets from 2023, including a return on tangible equity of at least 12%.

“As we said in the third quarter [results]we delivered a double-digit return on tangible equity for the nine-month period, excluding significant items, and we contained costs by improving efficiency across the organization,” the bank said.