Renewed rumblings of discontent by shareholders, including Ping An, look to turn the British-based bank’s annual general meetings into perennial exercises in self-justification. finews.asia takes a look. 

It is getting to be that time of year again. Many of us got a small taste a couple of weeks back with an impromptu presentation in Hong Kong, but as of today, we are clearly in the full swing of things.

With a vengeance, HSBC has again embarked on what is becoming a yearly exercise in trying to convince everyone about the soundness of its strategy, regardless of whether they are individual members of the public or major shareholders.

The difference this time is that many will actually get to vote on strategy during the bank's annual meeting, which will be held on 5 May, or two weeks from Friday.

Potential Spin-off

After all the regular stuff like annual reports, remuneration, and auditors get voted on, those attending will be asked to review special resolution 17.

It was proposed by a group of shareholders represented by Lui Yu Kin, and it calls for, among other things, a potential spin-off of the Asia business. As finews.asia reported earlier, Ping An, a vocal proponent of such a spin-off, is currently considering whether to support the resolution.

In its appendix, the bank set out a familiar riposte of self-justifications for its current strategy, which it embarked on in 2020. It discussed its strong 2022 performance and the fact that it is constantly re-evaluating its profile and business.

Various Disposals

After that, it mentioned last year’s sale of its US mass market retail business, French retail banking operations, and Canadian banking business.

It maintained all this helped it plow back capital to Asia while remaining the top trade finance bank in the world, the leading international payments provider, and among the three leading institutions in the foreign exchange markets.

But the now all-too-familiar riposte raises some basic questions that the bank leaves unanswered. It was once a wholly Asia-based bank so why has it become so ardently and uncritically defensive about its current structure?

A Short History

If we take a step back, the precursor to its current strategy (ResearchGate, downloadable free PDF), by many accounts, can be traced back to the late 1970s, when discussions started about returning Hong Kong, then its headquarters, to mainland China.

Concerned about what would happen to the city, it formulated a strategy to diversify away from the city, embarking on a «one-third» strategy with its businesses evenly spread between Asia, North America, and the UK.

In subsequent decades, it successfully managed that with the acquisitions of Marine Midland in the US as well as the UK’s Midland Bank (the institutions are unrelated), after which it moved its headquarters to London in 1991, shortly before the Hong Kong handover to China in 1997.

No Longer Diversified

But after last year’s disposals, it can no longer claim to be an adequately diversified business, at least from a geographical perspective, as the original third leg or pillar in North America has since largely ceased to exist. That means, at least from the outside, it isn’t making any sense to anyone but itself.

On top of all that, it hasn’t even managed to cut its dependency on Hong Kong, a key objective of its decades-old strategy. A quick glance at its 2022 annual report shows that Hong Kong alone makes up 28 percent of group profit (adjusted, before tax).

After all these years, after all this supposed diversification, the city still makes up almost an entire «one-third» pillar by itself. In fact, Hong Kong made almost half of all profit it recorded in Asia and almost twice what it made in Mainland China.

Very Small Contribution

All the other countries in Asia provide maybe around a tenth of the profit that Hong Kong does, except India, which contributed about 20 percent, followed by Singapore, although the latter contribution is still relatively marginal at 12 percent.

So what does this mean? It is hard to say. Although no one can predict the results at the upcoming AGM, it is more than likely that HSBC has enough proxy votes to counter Ping An’s roughly 8 percent holding as well as the wide swathe of discontented Hong Kong retail shareholders.

But HSBC should be asking itself far deeper questions than that. It has been very clear for a long time that management and the board no longer agree with shareholders eye-to-eye on what creates value at the bank. And the long-term consequences of that are rarely good ones.