HSBC will need a single, central risk-management and compliance function for its own safety. — Bloomberg
HSBC Holdings Plc successfully fought off a breakup campaign by disgruntled Asian investors in recent years.
Now, it’s announced a restructuring along almost the same East-West lines.
The obvious question is why?
It says it’s designed to create a simpler, more efficient and dynamic company – but it looks a lot like the bank is also facing up to the political reality of the growing schism between the United States and China.
A new structure won’t 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 as providing 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 Co, 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.
The bank ultimately won a shareholder vote on the breakup question at its 2023 annual meeting.
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 won’t give details on the financial benefits of its restructuring until its full-year results in early 2025, although analysts are expecting cost cuts worth hundreds of millions of dollars.
Savings will come from collapsing layers of its matrix of geographical and product managers, the same playbook as
Citigroup Inc is following.
Elhedery’s pitch to investors will 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.
But just as significant is the East-West split in its large commercial banking operations: Big company clients in Europe, the UK and the Americas will come under the newly merged corporate and investment bank, while similar clients throughout Asia-Pacific, the Middle East and North Africa will be overseen from Hong Kong.
HSBC has maintained 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 United States’ increasing exploitation of global reliance on the dollar to advance its political aims as the United States is about China’s ownership of or access to key computing and communication technologies.
The episode that most exposed HSBC was when the United States 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 Co.
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 both east and west.
The political stand-off between the United States and China hasn’t improved, and if Donald Trump returns to the White House next January, things could get even more tricky for any business caught in between.
The story HSBC tells about its restructuring is solely about financial efficiency and shareholder returns, rather than geopolitical defences.
That’s understandable: even talking about the latter risks causing problems more than providing answers.
Globe-striding financier
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 will remain hard even under the new structure.
HSBC will 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 won’t ever be a costless option – but it’s wise to be ready, just in case. — Bloomberg
Paul J. Davies is a Bloomberg Opinion columnist. The views expressed here are the writer’s own.
