Follow the money

Thoughts of decoupling and the potential consequences continue to occupy our attention. And finance is the focus at the moment. The big investment banks waited for so many years to get full access to the China market, and just as they have sort of achieved it, everything is changing. The IPO channel, moving China companies through to listings in the US markets, was a huge earner for many years, but with China firms now being encouraged to look to list only in Shanghai or Hong Kong, that line of business no longer looks promising. Then there was a story from both the FT and Bloomberg last week saying the Chinese authorities had urged foreign investment banks to rein in the salaries and bonuses of their executives. And finally, there is the question mark over the future of HSBC—does the Center want to divide it up?
HSBC, of course, stands for the Hongkong & Shanghai Banking Corporation, with Hong Kong being spelt in its corporate formal name as one word. It was founded and registered in Hong Kong in 1865, because that was at the time British territory, regardless of what future school textbooks in Hong Kong say, although the bank’s main center of activity was Shanghai. And while in the first 80 years or so of its operations the bank established a wide network of operations, linking Asia with London and spreading its tentacles into businesses from Japan to Jaipur, its primary source of revenues was always the China market. After 1949, that market suddenly almost but not quite totally closed—in 1979, we met the Chief Representative of the Honkers and Shankers in Shanghai, and he and his predecessors stretching back into the 1950s were effectively held hostage in China, with the government afraid the bank would pull out altogether. They were only allowed to leave China after their successor was in place.
Fast forward to now, and the bank still has not been able to assert a position in the China market in line with what was envisioned after the market reforms began in the Dengist era. Its ability to do banking business is still constrained compared to local state banks, despite all the promises of WTO and after. But was there a glimmer of light in terms of its prospects, given that its single largest shareholder these days is the very well-connected China insurance company Ping An? Maybe, but only with a possible twist. There have been many reports in recent weeks that Ping An is pushing for the China mainland and Hong Kong business of HSBC to be spun off into a separate entity. This would apparently unlock billions of dollars for shareholders. But it would also mean that the H and the S in the bank’s name would became irrelevant, and it’s slogan “The world’s local bank” would no longer be true. So which way would be the HSBC board in London jump? They have appeared very flexible on a raft of China issues in recent years including the troubles a couple of years ago in the cramped enclave. But would they cave to pressure to hive off their original source market? And does such pressure actually exist? The word is that the investment portfolio people at Ping An would like such a deal, to help them cover their losses in other areas. It’s a situation that is well worth following as a part of the great decoupling narrative.
Enjoy the weekend!