Could Rising Geopolitical Tensions Between West and China Rip HSBC Apart?

Life is getting harder and harder for Europe’s largest lender as it tries desperately to continue bridging two worlds — the West and China — that increasingly appear to be on collision course.

The world’s eighth biggest bank by assets, HSBC could soon have little choice but to break up into at least two parts — one serving its largest market, Asia, and the other serving the UK, mainland Europe, the US and its other Western outposts. This comes after Ping An, China’s largest insurance firm and HSBC’s largest shareholder, called for the lender to break up its Western and Asian operations, underscoring HSBC’s increasingly untenable position as a UK-based megabank predominantly serving customers in Hong Kong and mainland China.

The writing has been on the wall for some time as HSBC has tried — and failed — to keep policymakers in both China and the West on its side. Following the collapse of Chinese real estate developer Evergrande, in late 2021, there was a heightened risk that the ensuing economic and geopolitical fallout could end up splattering all over HSBC, Europe’s largest bank by market cap and preferred lender of choice to money-launderers, tax-evaders, narco traficantes and Islamist terrorists alike.

As I noted in a piece in September, titled “HSBC Bet the Bank on China, Now It’s Paying the Price”, the lender’s asset management arm was among the largest foreign holders of Evergrande debt. And foreign debt holders are increasingly looking like the bag holders of Evergrande’s collapse. HSBC also had, at last count, a far-from-insignificant $21.3 billion of exposure to China’s struggling real estate sector.

But HSBC’s problems in China extend far beyond its exposure to Evergrande and the Chinese real estate market. HSBC’s biggest problem, as I noted in the September article, is arguably political, or to be more precise geopolitical. As tensions rise between China (including its special administrative region Hong Kong) and the United States (and by extension the United Kingdom, where HSBC is headquartered), it is going to get more and more difficult for HSBC (and other Western banks and companies with a large market presence in China) to keep both sides of the escalating economic war between Beijing and Washington happy.

China Makes First Move

China, it appears, has made the first move. Peter Ma, the chairman of Ping An, which holds 8.2% of HSBC’s shares according to Market Screener, called on the UK-based lender to split its Asian and western operations, in what would be the largest corporate restructuring in HSBC’s 157-year history. An article on Bloomberg said it would be “the most dramatic split in banking history”, which is not as hyperbolic as it may sound considering that such a restructuring would involve splitting Europe’s largest bank into two entities occupying the polar extremes of the continental landmass of Eurasia.

The bad news for HSBC is that the bank’s second top-ten shareholder, which according to Market Screener is the Pennsylvania-based asset manager Vanguard Group, also seems to like the idea, telling the FT: “For HSBC, it is existential. They are not in a tenable structure. You would not create this institution from scratch.”

Founded in 1865 as the Hong Kong and Shanghai Banking Corp on the back of fortunes made in Britain’s opium trade (as a fascinating article by Le Monde Diplomatique recounts), HSBC is first and foremost an Asian bank, albeit one run largely by white men with British accents. The main reason why HSBC is headquartered in the UK was so that the bank could buy Midland Bank in the run up to Hong Kong’s 1997 return to China.

Reversal of Fortunes

Ironically, HSBC used to be the largest shareholder of Ping An before the latter’s Hong Kong IPO in 2004, at one point holding 20% of the Chinese insurance firm. Ping An is now the world’s most valuable insurance brand, with 225 million retail customers, and the 10th most valuable company in China, with a market cap of $116 billion, just $10 billion less than HSBC’s. But Ping An is not just an insurance firm, having recently expanded into many areas of financial services, including banking, as well as healthcare, auto services and “smart city services.”

In a recent private memo, Ping An listed a litany of issues at HSBC, from underwhelming returns to swelling costs. The firm, like many Asian investors small and large, was particularly peeved at the bank’s decision, taken under pressure from the Bank of England, to scrap its dividend payout in 2020. It was the first time the bank had taken cancelled dividends in almost three-quarters of a century.

But it is also perfectly plausible that China’s government had something to do with Ping An’s shock suggestion. After all, despite its long history of influence on Hong Kong, HSBC is now a lot more dependent on China and Hong Kong than vice versa. Moreover, the economic war between the US and China continues to escalate. Reports, at least in Western media, suggest Beijing is increasingly concerned that it, too, could face a similar barrage of sanctions to those unleashed against Russia.

Only last week, the Financial Times revealed that Chinese officials and regulators have been privately consulting banks in China, including HSBC, on how to protect China’s overseas assets in the event of U.S. financial sanctions. It is a prime example of how complicated life has become for HSBC, a Western bank that has long served as a financial fixer between East and West and enjoys exceptionally cozy ties to both the British and US political establishment. Lest we forget, HSBC was the first bank deemed “too big to jail” by President Barrack Obama’s Justice Department.

In the UK, the bank has secured the lobbying services of former British Ambassador Sir Sherard Cowper-Coles as well as the former No.10 Downing Street Advisor Lord Edward Udny-Lister. In the last year alone, it has liaised with trade ministers 15 times, with treasury ministers 27 times, with business ministers nine times, and with Cabinet Office ministers six times, including three meetings with the U.K. prime minister. As The Diplomat notes, the bank also still wields significant influence in Hong Kong:

The bank’s non-executive director, Laura Cha, is not only the chairperson of the Hong Kong Stock Exchange, but a close friend of outgoing Hong Kong Chief Executive Carrie Lam, and a member of the Hong Kong Executive Council. In addition, the CEO of HSBC Asia-Pacific, Peter Wong, was appointed to represent the financial services sector in July last year on the selection committee overseeing Lam’s replacement for chief executive.

Similarly, it has not gone unnoticed that current Chief Secretary John Lee’s son, Gilbert Lee, works for Hang Seng bank as a senior executive. On Sunday John Lee will be selected as the next chief executive of Hong Kong. In June 2021, Gilbert Lee was appointed to the Financial Reporting Council, which audits Hong Kong’s financial market on behalf of the government.

Ratcheting US-China Tensions

Now, HSBC is staking its future growth and fortune on China. But doing that while maintaining its close ties to the British and US establishment is becoming increasingly complex, especially with the looming threat of the US imposing further sanctions on China, which could trigger counter measures from China. HSBC’s relationship with Beijing was already severely tested in 2019 when it emerged that the bank had ratted out Chinese telecoms giant Huawei to U.S. authorities for breaching U.S. sanctions on Iran, which eventually led to the arrest of Huawei’s finance director, Sabrina Meng Wanzhou, in Canada.

HSBC representatives claimed that they had little choice but to cooperate with the U.S. investigation. “Stonewalling the Department of Justice was not an option,” an HSBC insider told the FT, given that “between 200 and 400 (U.S. monitors) were inside the bank at any given time.” They reportedly “had access to everything” — a legacy of the bank’s deferred prosecution agreement with the DOJ in 2012, after being found guilty of breaching sanctions and laundering money for Mexican drug cartels and Islamist terrorist groups.

Tensions between Washington and Beijing have done nothing but escalate since then. Last year, China introduced anti-sanction legislation aimed at counteracting what it perceives as Western economic bullying. The new law allows authorities to punish companies that comply with foreign sanctions. As The Diplomat noted at the time, it is not the first to take such action. The EU has also enacted policies specifically aimed at circumventing certain sanctions regimes.

HSBC, arguably more than any other lender, is slap bang in the middle of these ratcheting tensions. Last year, two-thirds of its profits came from Asia, in particular Hong Kong and the Chinese mainland. So entwined is Hong Kong’s recent history with that of HSBC that some of the city’s currency bills still, to this day, carry the bank’s logo. If anything, its dependency on China has intensified in recent years as HSBC has staged a strategic retreat from other emerging markets, including Brazil and Turkey, as well as mature markets in Europe in order to focus its attention on fast-growth Asian markets, in particular China.

But times have changed. Despite its long history of influence on Hong Kong, HSBC is now a lot more dependent on China and Hong Kong than vice versa. In trying to balance its strategic interests in both Asia and Europe, all it has achieved is to piss off everyone, as its second largest shareholder told FT:

“HSBC is in the least tenable position of any financial institution in the world on the US-China conflict. They are in a position where everyone hates them — the UK, France, the US, Hong Kong and China. I don’t see a path out of their current situation today and I don’t see the geopolitical tension getting better.”

In fact, it could be about to get worse, if President Biden adds Hangzhou Hikvision Digital Technology Co, the world’s largest manufacturer of surveillance cameras, to its Specially Designated Nationals and Blocked Persons (SDN) List for enabling human rights violations under the Global Magnitsky Act. The company is accused by the US of providing cameras for detention centers, mosques, and schools in Xinjiang, where Beijing has carried out mass internments.

The firm, which manufactured almost a quarter of the world’s surveillance cameras in 2019, selling them to more than 180 countries, is already on a number of US lists. It is barred from from importing U.S.-origin goods without a license; receiving American investment; or selling products to U.S. telecoms, federal agencies, or federal contractors. Yet as the Carnegie Endowment for International Peace notes, the current restrictions on Hikvision pale in comparison to what Washington is now considering, since inclusion on the SDN list is the harshest financial penalty in Washington’s tool kit, often used against terrorists, drug lords, and the worst human rights abusers:

An SDN designation would vault Hikvision past Huawei to become the most-sanctioned Chinese tech company. It would grievously (perhaps fatally) wound the company, depending on how sanctions are implemented—specifically, what scope of transactions are blocked and whether any exemptions are offered. Hikvision’s fate would also depend on how China, and other countries and companies, choose to respond.

The most severe sanctions would freeze all of Hikvision’s assets and create civil and potential criminal penalties for anyone globally who sends Hikvision money or property, provided there is some nexus to U.S. legal jurisdiction (such as use of the dollar-denominated international financial system). In other words, U.S. sanctions could stop Hikvision from selling anything to or buying anything from all countries friendly with (or at least afraid of) the United States. The sanctions could block Hikvision from using reputable international banks.

That is where the travails could be about to get even worse for HSBC (though some may argue that the lender, with one of the longest rap sheets in the banking world, may struggle to qualify as “reputable”). If Washington places Hikvision on its SDN list and Beijing responds by mobilizing its own counter sanctions, allowing it to punish companies that comply with foreign sanctions, life for HSBC, and other Western banks and companies that have staked their growth model on China, could be about to get even more complex.


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  1. dereinsameschuetze

    Hong Kong Shanghai Bank

    always has been the UK’s long imperial hand into not just mainland China, but much of Asia, a holdover from the East Indies days.

    read Geoffrey Jones’ histories of British banking in Asia including the role played by the Hong Kong Shanghai Bank in Persia for oil and empire.

    1. Revenant

      HSBC was historically involved in Imperial adventures and the opium wars. High crimes and misdemeanour, the state monopoly of violence etc.

      The Miami Vice years are the result of buying Edmund Safra’s Republic Bank, which appears to have been a real roach motel in US terms, full of, er, private entrepreneurs in the democratisation of violence and contraband.

      I think I read somewhere that Republic bank was another BCCI and Alan Stamford type operation, cosseted by the CIA. HSBC bought it to bulk out its “wealth management”. Safra died in mysterious fire in Monaco.

      1. Colonel Smithers

        Thank you, both. Both of you are correct.

        I worked on the Safra / Republic transaction and integration. Colleagues works on the equally dodgy Household Finance acquisition. Both were considered time bombs then, but management elders and betters overruled.

  2. diptherio

    “…drifting further and further apart and may even be on a collision course.”

    Not gonna lie, I’m having a real hard time getting over that subhead…the lack of metaphoric consistency is really doing a number on my sleep-addled brain.

    1. Nick Corbishley Post author

      Dang, good point, Diptherio. I did initially just have them on collision course but then my own sleep-addled brain decided to insert the “drifting further and further apart” part. Think I’ll go back to plan A.

      1. Revenant

        In spherical geometry for globalists, things which drift apart are also on a collision course on the other side of the world! So, right for the wrong reasons….

  3. Colonel Smithers

    Thank you, Nick, for this timely post.

    I meant to flag this, soon after the FT front page, to Yves as I worked at the bank from 1999 – 2006 (and with the bank from 2008 – 14 at trade associations) and am familiar with the issues.

    HSBC has feared this day since it tried to buy RBS in the early 1980s, and was rebuffed as foreign bank by the Bank of England, and, in more favourable circumstances, bought Midland Bank in the early 1990s. Both moves were prompted by the impending return of Hong Kong to China in 1997.

    The bank has managed this delicate balancing act by making sure enough senior leaders were based in Hong Kong and visibly so, vide when periodic reports and accounts are presented. In addition, the bank recruited retired senior diplomats like David Gore-Booth and Rodric Lyne, who perhaps NC’s David knows, and even former intelligence officials to keep lines of communications with governments open and ensure live and high quality analysis of risks.

    When the UK adopted structural reforms and higher capital requirements in the teens, the pressure to break up became commercial, but, especially with the Ping An cross shareholdings, the geopolitical tension was never far below the surface.

    These tensions were manageable under David Cameron’s government as the government wooed China. Cameron is also descendant of the first general managers not just of HSBC, but Chartered Bank, later Standard Chartered, and is cousin and neighbour of the heirs to Jardine Matheson. In addition, Panmure, which was led by Cameron’s grandfather and father, was useful for Chinese firms in the London market.

    With the changes in the leadership of the UK, especially the frankly and utterly parochial Theresa May, and rising political tension, the threat to HSBC, and I reckon Standard Chartered, has become existential.

    Both firms have scaled back their European and American activities, so concentration on their historic markets would not be that much of a commercial challenge. The UK links are historical and political, not to mention cultural as few people from Asia (and, with regard to Standard Chartered, Africa) rise to senior leadership posts there.

    It’s not just these two firms grappling with this risk and tension. When the favourite to become the next CEO of Deutsche Bank, Stefan Hoops, was appointed head of corporate banking in mid 2018, he admitted his private view is that DB should scale back its US presence, due to the regulatory risks and inability to compete with US giants on their home turf (so a waste of limited resources), and concentrate on the domestic (i.e. European) and Asian markets. Hoops added he felt that Germany was too associated with the US and suffering as a result in Asia (not just China) and would have to choose between the US and Asia (code for China), if only to become markedly less Atlanticist.

    That debate flared up as the Russian invasion proceeded, but has quietened after Bucha and Zelensky’s public singling out of Auchan, Le Roy Merlin and Renault, Merkel and Sarkozy for facilitating the Russian war machine.

    Hoops is about 40, so this could be thinking associated with a change of generation, but the youthful leaders of the German Greens and Liberals are Atlanticist, full on neo con and neo liberal.

    1. Nick Corbishley Post author

      Thanks Colonel for the all extra info and added color, especially the final part about Deutsche’s new CEO. I also didn’t know about David Cameron’s familial ties to HSBC, Standard Chartered and Jardine Matheson. It truly is a big club and it’s good to have someone here at NC who is on the inside or at least close to it.

      1. Colonel Smithers

        Thank you, Nick.

        I am glad that you posted. NC does a better job than the FT.

    2. Michaelmas

      Colonel S: Both firms have scaled back their European and American activities… It’s not just these two firms grappling with this risk and tension … the favourite to become the next CEO of Deutsche Bank, Stefan Hoops … admitted his private view is that DB should scale back its US presence, due to the regulatory risks … Hoops added he felt that Germany was too associated with the US and suffering as a result in Asia (not just China)’

      A venture capitalist of my acquaintance — a US national but UK citizen — is currently moving his residence and center of operations from the US to London. He went to Coutts — banker to the Queen, FFS! — and was assigned an accountant who made clear that they could more immediately help him if he were Russian and that establishing himself in the UK will be a laborious, lengthy process.

      The general rapaciousness of the US and, in particular, the onerousness of the demands of FATCA reporting, have produced a situation where UK banks are unwilling to have anything to do with US citizens and US nationals if they can avoid it or unless it’s highly profitable. Presumably, the same situation obtains elsewhere in the world.

      1. Colonel Smithers

        Thank you, M.

        You’re right about US rapaciousness and the UK situation replicating around the world.

        Fragmentation of the global financial system may slowly erode US aggression, but I see the US dragging Europe, UK and EU(27), into its orbit much further, so twin systems emerging in the decades ahead.

  4. The Rev Kev

    I can see why the Chinese would seek to split the bank up between east and west for several reasons. First off is the fact the western economies are about to be dragged through the dirt because of the future fallout of the Ukrainian war. I doubt that those in the east would be happy to see HSBC’s profits get dragged down which would effect investments in the east. Being separated allows the eastern side to sell off investments in countries in the west that they think will be experiencing future trouble. Also, there is no doubt that the US/EU is going to be gunning for China and HSBC would be used as a vector of attacks on anything Chinese connected with this bank. You can be sure that treasury people are examining that bank for weak points and how they could be utilized. If HSBC remained unified, what would happen if the US/EU ordered them to follow sanctions against China? How would that play out? No, better to split now while there is still time. Gee, I wonder if something similar happened when the Roman empire split into its western and eastern empires?

    1. Susan the other

      All this co-mingling of politics is not going to end well. How is it that China, who keeps their finance industry under state control even though they deal with big private banks like HSBC, can trip in and out of western financial credit? The whole thing is “untenable” on that loose end alone, isn’t it? For HSBC to be caught between China’s anti-sanction legislation and the US’s (absurd) Global Magnitsky Act has gotta be Peak Finance (lotsa money, nowhere to invest). If China were sanctioned by the West under fabricated charges of human rights violations it could be very confusing. Think of the tangle. And, I don’t readily see the danger of a Chinese company (Hikvision) exporting surveillance cameras – since every government/corporation uses them – unless it is in the fabricated context of building up a pretext, a big case, against China for human rights violations and then having an excuse to “sanction” them. So China doesn’t look to have sufficient control over its Finance sector to protect itself from HSBC’s interesting bookkeeping. But who in their right mind would want to set off that mess? It is also guaranteed to backfire. Isn’t the antidote to peak finance still MMT?

  5. Brick

    The Vanguard Group that also hold shares in Citigroup and JP Morgan banks who also have business in Hong Kong. HSBC does have the problem that Elon Musks twitter is likely to face when it follows local rules it will undoubtably upset everyone. The good thing going for HSBC is that it probably could be split without big losses.

    Personally I would be concerned about Chinese Share Index creators who are likely to own Chinese assets to create the Indexes. Barclays and JP Morgan might be the banks exposed in this way according to the SEC document “US-Investors-Exposure-to-Domestic-Chinese-Issuers”.

  6. Thuto

    If the Russia Ukraine war results in the splintering of the world into economic blocs, it’s more than just banks and companies in the financial services sector that will be ripped apart. The great firewall that separates the internet in China from the one operating in the rest of the world will find its analogue in something similar becoming a normal part of how companies structure their operations between east and west (or increasingly between the Eurasian bloc and the rest of the world). Bytedance, the chinese internet giant that owns Tiktok, blazed a trail in this regard when scaling its highly popular Duoyin app globally, setting up the “rest of the world” operations in Singapore and rebranding the app into Tiktok for the international market. This dual corporate structure is partly the reason why they were able to hold the line against the relentless attacks the Trump administration subjected them to. It surely hasn’t gone unnoticed in Beijing after the Russia sanctions debacle that Western companies can be weaponized against countries deemed to be anti the so-called international rules based order and given this state of affairs, I expect the CCP will be looking at redrafting the rules of engagement with companies that want access to the lucrative China market (specifically making sure they operate at arms length from, and under a different set of rules to, their western parents).

    As the storm clouds continue to gather around US/West-China relations, I suspect this will be the norm for all manner of companies, from banking, to automotive, fashion, luxury goods and everything else in between.

  7. Jacob Hatch

    “The main reason why HSBC is headquartered in the UK was so that the bank could buy Midland Bank in the run up to Hong Kong’s 1997 return to China.”

    The main reason why HSBC is headquartered in the UK is Hong Kong’s 1997 return to China. The management bought Midland Bank as part of a series of maneuvers in a poison pill policy to protect their positions.

    This series of maneuvers which devastated shareholder value was made easier by a long standing HK law that prevented any group from owning more than 2% share of the note issuing bank, such that HSBC management was more or less immune to any shareholder pressure, and only responsible to the British Foreign Office before 1997.

  8. Kouros

    I wonder what will be the name of HSBC’s western part after the split. It cannot stay as HSBC. There is no Hong Kong nor Shanghai in Europe, as far as I know…

    1. Colonel Smithers

      Thank you, K.

      Midland Bank may be resurrected. It exists largely as HSBC UK and is based in Birmingham.

        1. Colonel Smithers

          Thank you, JH. I don’t disagree.

          When I joined the bank in 1999, I joined what was a Hong Kong bank arm. When I transferred to the main bank in 2001, it was the old Midland. There were still cultural differences. I prefer Hong Kong bank.

  9. timbers

    Am starting to get the impression that the “West” can’t along with the inhabitants of planet Earth.

  10. Jokerstein

    David Kynaston and Richard Roberts have published The Lion Wakes – a Modern History of HSBC, a magisterial history of the Honkers and Shankers in the modern era – starting in the later 70s.

    It’s heavy – 785 pages – but as detailed and authoritative as you would expect from these authors.

    Unfortunately it ends in 2015, but maybe that leaves room for The Lion Gets Darted?

    1. Colonel Smithers

      Thank you, J.

      The Home for Scottish Bank Clerks may soon be no more. One wonders how long the lions of Canary Wharf will last.

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