HSBC: Torn between two lovers

April 08, 2020 10:45
Photo: Reuters

Everything is political, even in the world of finance.

The maelstrom that banking giant HSBC Holdings (00005.HK) now finds itself in, an offshoot of its unprecedented decision to cancel the dividend that it had already declared for its shareholders, lays bare the inherent duality of its corporate personality.

Though based in London, it is primarily listed both in the British capital and in Hong Kong, where it was born and continues to draw much of its sustenance.

For the millions of Hongkongers who have supported the bank through thick and thin, its move to axe the dividend is an act of betrayal.

It raises the inevitable question: Where does its loyalty belong?

This, in fact, is the gist of the complaint of former Hong Kong leader Leung Chun-ying, who is urging the public to boycott the bank.

The vice chairman of China’s top political advisory body is asking why HSBC – which counts half of the city’s population as its customers and has made most of its profit in Hong Kong, mainland China and Asia – would listen to the British government and cancel the dividend, which breaks the hearts of ordinary Hong Kong shareholders, who have been looking forward to the payout to help tide them over in these trying times.

As far as CY Leung is concerned, it seems, HSBC does not deserve the loyalty and support that Hong Kong people have accorded the institution, and that is why he is spearheading a boycott of the bank.

“Why HSBC, after all these years, did not groom a Hong Konger as a senior management in the London headquarters?” asks Leung on his Facebook page.

“None of its executive directors are from Hong Kong. What the heck is going on?”

The British-based bank has taken Hong Kong people for granted after taking what it wanted, according to CY Leung.

Leung may not have been a popular leader during his term as Hong Kong chief executive, but his scathing remarks about HSBC would probably resonate with a lot of the bank’s retail shareholders in the city.

Executive Council member Joseph Yam Chi-kwong, on the other hand, believes that it all boils down to governance.

Yam, who used to head the Hong Kong Monetary Authority, the city’s de facto central bank, said there might be a conflict of interest because although it derives the bulk of its earnings from the city and the rest of Asia, as a British-based bank, it has to listen to the advice of the Bank of England, whose regulatory arm has recommended the suspension of dividends and share buybacks in view of the current crisis.

That being the case, HSBC should return to Hong Kong from London, where it had moved its headquarters before the 1997 handover, Yam says.

Leung, however, thinks all this talk about “redomiciling” to Hong Kong is hypocritical if it is being used to divert attention from the bank’s move to scrap dividends.

Since the handover, HSBC has found itself navigating the turbulent straits between China and the West.

Although the bank was accused of siding with the administration after it closed an account used to support anti-government protesters in the recent social unrest, HSBC is not exactly Beijing’s fair-haired institution after it got involved in investigations that led to the filing of fraud charges against Huawei Technologies’ chief financial officer Meng Wanzhou in connection with US sanctions against Iran.

The fact is, HSBC has no majority shareholder. The two largest shareholders are Ping An Insurance (02318.HK), which holds 7.01 percent, and New York-based fund manager BlackRock, which owns 7 percent.

Meanwhile, the controversy over its decision to scrap dividends is unlikely to blow over soon.

A group of shareholders, claiming to number more than 3,000, demanded that the lender reinstate the dividends or at least pay them in the form of additional shares and cut the directors’ fees for a year.

The activist group is likely to gather more support as HSBC’s shares have already fallen 34 percent year-to-date, wiping out some HK$428 billion from its market capitalization. It closed at HK$40.15 on Tuesday.

So it seems the road will remain bumpy for the bank in the days ahead.

– Contact us at [email protected]

EJ Insight writer