Investors pushing for HSBC break-up to eliminate risk

Some of HSBC's (0005) shareholders have proposed that the board of directors should split the bank into two to eliminate political risks and enhance profitability, ahead of its annual general meeting this Friday, The Sunday Times reported.

Shares of the British lender, which will announce its first-quarter results today, fell 4.6 percent yesterday to HK$51.65 yesterday.

The management has failed to execute the company's strategy, particularly in meeting revenue targets, the unnamed shareholders told the newspaper.

The investors have suggested the management seek ways to spin off or divest the Asian business, according to the report.

The divestment would give investors the flexibility to determine and value their holdings in HSBC's Asia and non-Asia businesses independently, and would help HSBC be freed from the burden of its Asian businesses, with a significant increase in the valuation, it said

The move could also help to attract and retain talent, it added.

HSBC is expected to report a 35.6 percent drop in first-quarter pre-tax profit to US$3.72 billion (HK$29.016 billion) from a year earlier, based on consensus from analyst forecasts compiled by the bank.

On average, securities dealers forecast the bank's net interest income would rise 6.1 percent year-on-year to US$6,911 million in the first quarter. Net interest margin would widen 3 basis points to 1.24 percent from earlier year. Other income may see a 9.9 percent decrease to US$5.83 billion in the first three months.

Analysts said the lender's performance, especially its wealth management unit in the first quarter, has been affected by a number of negative factors, including the pandemic and the Russia-Ukraine war.

Bank of America Securities said that HSBC's quarterly results were weighed down by a number of factors, with pre-tax earnings forecast at US$3.631 billion for the first quarter, down 37 percent year-on-year. The US bank said that the benefits of the interest rate hike should be reflected in the first quarter, but more of this will be reflected later. During the first quarter, its mortgage lending in Hong Kong has weakened, and the anti-pandemic measures in China and Hong Kong may have affected sales of insurance and other financial products.