The battle for Asia’s preeminent financial institution will be fought with the Federal Reserve providing ammunition — to both sides. Just how much profit each can squeeze out of US monetary tightening may end up deciding if Hong Kong’s biggest bank, HSBC Holdings Plc, stays whole and dominant. Or if Singapore’s largest lender, DBS Group Holdings Ltd., gets a shot at staging an upset.
Rising interest rates are shoring up net interest margins for banks everywhere. For the June quarter, Singapore’s DBS reported a better-than expected 7% jump from a year earlier in net income to $1.82 billion on Thursday, with Chief Executive Piyush Gupta garnering a return on equity of 13.4%. Noel Quinn, his counterpart at HSBC, is only targeting 12%-plus return on tangible equity by next year. While that would be the best performance for the London-headquartered lender since 2011, it may not be enough to quell demands by its largest shareholder, Ping An Insurance Group Co., to split off the Asian operations.
The call is finding increasing support among Hong Kong’s mom-and-pop shareholders, who’re upset with dividends that are just half what they were in 2018 — after they were scrapped for a year under UK regulatory instructions in 2020 when the pandemic hit. Any breakup of the bank would put at risk the US$1.1 billion of first-half revenue that came from global banking and markets clients in Europe and America but was booked in Asia. Not only is this amount a chunky 14% of the division, it’s grown twice as fast as the overall pie, according to Quinn’s presentation.