Ping An urges 'aggressive' cost cuts at HSBC, pushes for break-up - report

4th Nov 2022 07:20

(Sharecast News) - HSBC's largest shareholder, Ping An, has reportedly urged the bank to be "much more aggressive" in reducing costs by cutting jobs and warned that its board lacks experience in Asia, as it pushes the lender to spin off its business there.

Michael Huang, chair of Ping An Asset Management, told the Financial Times it was "urgent" that HSBC goes further on cost cutting to bring down its expenses, which it said are far higher than its rivals, and said a number of senior bankers do not have sufficient experience of working in Asia.

Ping An has a stake of more than 8% in the bank. HSBC, led by chair Mark Tucker, has pushed back against separating its Asian business, arguing it would be too complicated and incur huge costs.

A person familiar with Ping An's thinking told the FT that the insurer was still pushing for a split and discussions were "ongoing". Ping An started calling for a break-up in February, complaining of years of underperformance by HSBC and about the cancellation of its dividend during the pandemic.

Huang noted that last year, HSBC delivered returns of 8.3%, which was "far below" the 12.3% average of its peers.

He added that HSBC should "be much more aggressive in radically reducing its costs", noting that its cost-income ratio of 64.2% is 13 percentage points higher on average compared with competitors. Expenses could be lowered "by reducing its operating costs such as manpower and IT" as well as the cost of its global headquarters, he said.

"This is the most important, urgent and absolutely needed action for HSBC to improve its business performance, reducing costs and increasing efficiency, particularly amid slowing growth in the global financial industry," Huang told the FT.

HSBC is aiming to remove $5.5bn of costs by the end of this year and another $1bn next year. In 2020, it unveiled its "pivot to Asia" strategy, but Huang said "the market hasn't seen any substantial actions or material results over the past two to three years" and called for more resources to be shifted to Asia.

HSBC also announced in April 2021 that it would move four of its most senior bankers to Hong Kong. But Huang said "this move has not been completed".

"To our understanding, three out of HSBC's four global business line CEOs only have one year's work experience or less in Asia," he said. He also told the FT that HSBC should make "concrete measures" to "strengthen its market position in Asia and capture the opportunities arising from the rapid development in the Asian market, while striking a balance between its global finance model and cross-border systemic and geopolitical risks".

HSBC said in a statement to the FT that it was on track to hit all its financial targets from 2023 onwards, including a return on tangible equity of at least 12%.