Caught between China and the US, the pressure for HSBC to split grows | Nils Pratley

Caught between China and the US, the pressure for HSBC to split grows | Nils Pratley

Noel Quinn, chief executive of HSBC, had his line and he stuck to it. He was just a humble banker, obeying the rules in Hong Kong, even the draconian ones imposed by Beijing that stamp out the last knockings of democracy. “It’s not my position to make moral or political judgments on these matters,” he told the foreign affairs select committee. “I have to comply with law.”

One matter in question was HSBC’s freezing of the bank account of pro-democracy activist Ted Hui. It was the Hong Kong police that told HSBC to act, said Quinn, and any bank would have to do the same. Not complying, he argued repeatedly, could ultimately mean losing the licence to operate.

This straight-bat defence was what you’d expect, of course, and Quinn only looked discomforted when invited to defend the decision of Peter Wong, HSBC’s top executive in Asia, to sign a petition last year supporting China’s new powers for Hong Kong.

Quinn argued that Wong was merely signing as a citizen of Hong Kong and, absurdly, that the act was not political. “I think our definition of what is political may be slightly different,” replied committee chair Tom Tugendhat. Quite.

An hour of questioning by MPs is the least of HSBC’s troubles, however. The wider question is whether a 150-year-old institution can maintain its double life as a UK-regulated bank that makes most of its money in Hong Kong. “I do not see a point where we will have to split the institution into two,” said Quinn.

Again, he’s bound to say that – appearances must be maintained. But, come on, it’s easy to imagine circumstances in which a split could become necessary. For starters, US-China relations could deteriorate further, making the bank an even bigger political football. Remember, HSBC also needs a licence to clear US dollars.

The other important party is the shareholders. It is hard to judge the degree of “Hong Kong discount” in HSBC’s share price, but it’s not nil. If a split comes to be seen as a way to restore value, there will be pressure. Quinn can opine unconvincingly about staying out of politics, but it’s really not that simple.

BlackRock talk the talk

It was good news, of course, when BlackRock finally started talking seriously about climate risks a year ago – even if the world’s biggest fund manager was years behind most big European rivals in doing so.

The company, with an astonishing $8.7tn under management, is still not at the radical end of the spectrum but it has moved. There is a greater willingness these days to side with activists on shareholder-led climate proposals, for example.

Chief executive Larry Fink’s latest annual “dear CEO” letter contained two new ideas. First, BlackRock will push companies harder to commit to business plans that align with net zero emissions by 2050. And, in its actively managed funds, the firm is threatening to dump the worst polluters.

The second proposal is more interesting but needs to be seen in context. BlackRock is predominately an index-tracking operation – that is where 90% of its equities are held. Thus divestment is not an option for that portion, even if clients can be encouraged to switch into passively managed funds with ESG (environmental, social and governance) overlays.

But the actively managed funds are still big in their own right, and some holdings in polluters will be so significant that BlackRock’s departure could affect the price at which those companies can raise capital. But, to be taken seriously, the weapon has to be used occasionally. The divestment threat was merely a couple of lines in Fink’s letter. Let’s see if he really means it.

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Saga’s all at sea

There is “pent-up demand for cruises among our guests who will benefit from the first round of vaccine rollout,” says Saga. It wants to get them at sea as early as May.

The timetable looks ambitious since it surely depends not only on the punters’ willingness to travel but also on other countries’ willingness to let them land to inspect the local sites. If destinations are still locked-down, a boatload of UK tourists, even ones waving vaccination certificates, may not get a welcome.

Still, if Saga is right about pent-up demand, it sends a bullish signal for the rest of the travel market. Cruise ships, as floating super-spreaders, did not have a good press during the early stage of the pandemic. If the passengers are undeterred, budget airlines can expect a boom.

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