HSBC defeats proposal to spin off its Asian business at contentious shareholder meeting

HSBC defeats proposal to spin off its Asian business at contentious shareholder meeting

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.”

Last month, HSBC said spinning off its Asian business “would result in material loss of value for HSBC shareholders.”

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.

HSBC spin-off proposal reflects a longer-term issue that's not likely to go away, says analyst

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.

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(With Inputs from cnbc)

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