The Times: Rethink could transform HSBC, rebel says

October 17, 2007
Patrick Hosking, Banking and Finance Editor

A radical strategy overhaul of HSBC could produce at least 17 times more value for shareholders than the bank’s existing diversification policy, the rebel shareholder Knight Vinke claimed yesterday.

Renewing his assault on Britain’s biggest bank, Eric Knight, the founder of Knight Vinke, suggested that HSBC could transform its fortunes by choosing to build scale in a few key retail markets and abandoning its string of sub-scale operations.

On the investment banking side, HSBC should either buy or merge with a bulge-bracket firm to give itself serious clout and reach, or otherwise pull out entirely, Mr Knight said. It could not afford “to sit on the fence any longer”.

The activist investor said that HSBC’s strategy of diversifying into more and more countries and joining up the pieces would produce only an extra 3 per cent of value for shareholders. By contrast, a strategy of building big positions in a few countries and withdrawing from others would deliver a 50 to 75 per cent gain.

“Some kind of radical restructuring is required,” Mr Knight said. “No matter what HSBC says, there are some real issues here.”

Knight Vinke has met 40 institutional investors in the past few weeks to seek support for an independent strategy review of HSBC. So far, none has gone public in expressing support, although Mr Knight said that many were sympathetic.

Mr Knight gave warning that he had no intention of abandoning his campaign, even if it took years to bring about reform. He said: “We’ve dug the trenches and we’re in this for the long term, if necessary. We’re in this for the long haul. If it takes three or four years to do it, we’ll be there.”

Mr Knight urged HSBC directors not to be embarrassed to change their minds, pointing them to the case of Shell, in which Knight Vinke successfully campaigned for restructuring. He said: “Jeroen van der Veer [the Shell chief executive] was in exactly the same position. He did a U-turn and came out of it looking extremely good.”

Legal & General, one of HSBC’s largest shareholders, with a 4 per cent stake, is understood to have told the bank that it does not intend to support Knight Vinke.

However, Knight Vinke has the support of two of America’s biggest pension funds, CalPERS and CalSTRS. CalSTRS, which manages pensions for Californian teachers and owns about £131 million of HSBC stock, wrote last month to Stephen Green, the bank’s chairman, telling him it was “deeply concerned by your casual dismissal” of the issues raised by Knight Vinke. It said: “Your reaction and the statements of the nonexecutive directors suggests a complete lack of respect for proper corporate governance.”

HSBC, replying to Knight Vincke’s critique yesterday, said: “HSBC meets dozens of investors every month and we are confident that our strategy is clearly understood and well supported. This strategy was reviewed and comprehensively overhauled by the entire board earlier this year and we are focused on executing it.”

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2673549.ece

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