China will not rest until HSBC heads home

The bank's annual shareholders' meeting takes place in Birmingham this week

The HSBC Main Building, alongside the Standard Chartered offices in Hong Kong's financial district. EPA
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IF a bank can have a personality, then HSBC’s is split.

There’s the head office in London’s Canary Wharf. And on the other side of the world, in Hong Kong, there is a tower known as “HSBC Main Building”, in other words, it is not a headquarters.

They were both designed by the same architect, Norman Foster. The actual HQ is 45 storeys, and the older, Hong Kong building is 44. London has the bigger floor area.

This is not by chance. It’s deliberate. For HSBC, “home” from 1865 until 2003 was Hong Kong. Since then it’s been London.

Except, it does not feel like home at all. If you go to Hong Kong, where I was recently, the presence of HSBC is unavoidable. The bank is everywhere, from the towering main premises at 1 Queens Road Central, the grandest address, overlooking the harbour, to numerous other locations. As are its employees — I lost count of how many I encountered. It feels right, as if the bank is part of the very fabric of the place and with that, the surrounding region.

In London, HSBC is one of many. Even its skyscraper, which it is considering leaving or reconfiguring for something smaller, is largely anonymous.

Try as it might, HSBC is not in Britain’s DNA. It has never been loved or accepted, not in the same way as Lloyds, Barclays, National Westminster or Midland, which it swallowed. It sticks to its initials, HSBC, and dare not call itself by its real name, Hongkong and Shanghai Banking Corporation, for fear of losing business. Lloyds is currently running warm, feel-good adverts based on its iconic black horse; HSBC’s ads by contrast, emphasise its global power and reach.

All this will come to a head on Friday this week, with the HSBC annual shareholders' meeting in Birmingham. Ping An, the Chinese insurer and the bank’s largest shareholder with 8.3 per cent, is agitating for the giant financial group to split in two, between Asia and the rest.

The simple argument is that the corporation finds it easier to make money in Hong Kong, China and the neighbouring centres than it does in other parts of the world. The one is effectively subsidising the other. Let HSBC Asia play to local strengths and historical and cultural ties; let the rest focus on what it does best.

Try as it might, HSBC is not in Britain’s DNA. It has never been loved or accepted

Ping An maintains the bank is held back, caught between the West and China — not a good spot to be as tensions between the two heighten. Far better, they claim, to let one half of the business be listed in Hong Kong, its biggest market (HSBC would remain a controlling shareholder, but the spun off part would, to all intents and purposes, be a Hong Kong, and therefore China, entity).

That’s not how the bank, led by Noel Quinn, the chief executive, sees it. Their business model, he says, is based on HSBC enjoying “international connectivity”.

His strategy is still to focus on Asia, while dropping non-core activities elsewhere, and still run everything from London.

Ping An has been bolstered by anger among the bank’s army of Hong Kong retail investors, many of them former employees, at the Bank of England’s intervention during Covid to prevent the payment of dividends. They rely on those payouts for their income and as they saw it, here was the imperialist institution denying them their right. “Their” HSBC, listed in Hong Kong, would not be under the thumb of the Bank of England and other UK regulators.

There is a certain irony to all this. In 2012, HSBC was fined the biggest amount in US history, $1.8bn, for facilitating the laundering of money by the Mexican Sinaloa drugs cartel, controlled by “El Chapo”. The US authorities wanted to bring prosecutions and possibly jail, senior HSBC executives. The British government leapt to HSBC’s defence, saying that would run the risk of bringing down the bank and with it, the entire banking system. In the end, as I relay in my book, Too Big To Jail, the Americans relented and stuck to the fine and requiring HSBC to undergo a six-year reform programme.

I’m often asked, yes, so where has the Sinaloa cartel gone for its banking services? The cartel is as strong as ever, so it must be washing its dirty money somewhere. The answer is China. A critical part of the Sinaloa’s laundromat was in the Cayman Islands — HSBC opened the offshore haven to the mobsters and allowed them to clean their drugs proceeds there, for onward transmission into the world’s legitimate financial networks.

HSBC closed the Cayman operation responsible, but it is noticeable just how many banks and financial bodies from China have since been applying for Cayman banking licences. Sure enough, last week, a US congressional hearing was told that Chinese criminals are helping Mexican drug cartels bypass banking and regulatory crackdowns in the US and Mexico with the help of Chinese banks and expatriates keen to buy illicit dollars. The trade had been exacerbated by a breakdown in communications between the US and China, and Beijing’s refusal to acknowledge any Chinese wrongdoing.

At the session on drug financing, Lisa McClain, a Republican congresswoman from Michigan and chair of the House subcommittee on health care and financial services, said that China was the “global hub” of money laundering. “The State Department estimates that $154bn in illicit funds pass through China each and every year,” she said.

So, if Ping An and the Hong Kong ordinary investors succeeded, HSBC would become smaller and no longer too big to pursue, but at the same time, a major part of the existing HSBC could fall under the regulatory influence of China, which the US accuses of displaying a disregard to money laundering, certainly where it is concerned (the US subtext being that China is happy to see America continue to grapple with a never-ending drug problem).

They are not likely to win. Most HSBC institutional shareholders are thought to oppose the break-up. They claim the bank benefits from being truly international and those profits would be lost. Two investor advisory groups, Institutional Shareholder Services and Glass Lewis, have declared in favour of HSBC remaining as it is. Meanwhile, analysts at the stockbroker Keefe, Bruyette & Woods estimate the split would cost between $10 billion and $13 billion to implement. They also say their analysis “suggests little in the way of ‘hidden value’” that could be unlocked.

HSBC’s status quo case is reinforced by a just-revealed, whopping 212 per cent increase in profits. For the first quarter, the bank made a pre-tax profit of $12.9 billion, up from $4.2 billion for the same period last year.

Come Friday, nothing is likely to change. But that does not mean the pressure has gone away. Hong Kong and China are unlikely to rest until HSBC heads home.

Chris Blackhurst is the author of Too Big To Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan)

Published: May 03, 2023, 6:41 AM
Updated: May 05, 2023, 1:58 PM