HSBC has warned of significant IT risks to the business should proposals by shareholder Ping An Insurance Group of China to break up the lender come to pass.
Ping An wants to split HSBC’s Asian operations from the rest of the business, arguing that this would deliver better returns to shareholders.
In a presentation to analysts on a positive second quarter, HSBC CFO Ewen Stevenson hit back at Ping An’s proposals, arguing that the risks of setting up separate IT systems for Asia would far outweigh any material benefits from the move.
“If you just look at the one-off costs associated with setting up a structure, if you were to have a separately listed Asian subsidiary, you would have to be able to demonstrate that you had standalone IT systems, which would probably take three to five years to construct, would run into the probably billions of dollars to be able to do that.”
One-off restructuring costs and risks to wholesale revenues would also come into play, he says.
“You would have to effectively duplicate corporate functions and IT run costs that we get global synergies on today. You would lose group purchasing power benefits that we get today,” he says. “All of the timelines point to three to five years. In that three to five years, we would have to prioritise IT change in respect of the separation rather than IT change in respect of the core business.”
Speaking of the bank’s transformation programme, CEO Noel Quinn took the opportunity to talk up the impact of digitsation across the global business.
“Digitising HSBC continues to improve the client experience and make our processes more efficient,” he says. “We’ve continued to raise our spending on technology with more than half spent on changing the bank initiatives to drive growth and efficiencies. This is in spite of the commitment to keep our overall costs stable in 2022.”
Quinn says the bank has more than doubled the proportion of its agile workforce over the past year, which is expected to translate into a much faster release frequency for new features.
“Our cloud adoption across public and private cloud continues to increase beyond 30% with an ambition to go much further,” he adds. “We are simplifying and digitizing the bank. We are engaging and will continue to engage with all our shareholders. We share the desire for improved returns and understand the importance of dividends to them.
“We think the best and safest way to improve returns is to focus on our strategy, which we are confident we’ll deliver a return on tangible equity of at least 12% from 2023 and materially increased distribution.”
