Knight Vinke urges HSBC to rethink global expansion strategy

PUBLISHED : Tuesday, 11 September, 2007, 12:00am
UPDATED : Tuesday, 11 September, 2007, 12:00am

HSBC Holdings' shares could rise substantially if the lender adopted a more focused strategy instead of expanding into every market, according to activist investment firm Knight Vinke Asset Management.

New York-based Knight Vinke, which owns less than 1 per cent of HSBC, suggested that HSBC consolidate its position in India or buy the rest of Hang Seng Bank, its Hong Kong subsidiary, to create more synergy.

'With a more focused approach, we believe the share price [of HSBC] could be 50 per cent higher than it is today,' said Knight Vinke chief executive Eric Knight.

HSBC did not respond to a request seeking comment.

The investment firm last week called on HSBC to conduct a 'fundamental review' of its strategy and management structure, claiming the bank had underperformed for most of the past 15 years.

'We are not asking for a break up and we are not asking for the chairman to resign,' Mr Knight said, adding that they were only looking for a strategy with greater value for shareholders.

He said he spoke with HSBC chairman Stephen Green last week and would meet him again soon.

There were two other HSBC shareholders that were interested in talking further with Knight Vinke about the issue, he said.

Mr Knight said that when HSBC left Hong Kong for London in 1992, its strategy was to become a global bank.

The bank had made about US$40 billion in acquisitions to build a federation of independent banks in the past 15 years, he said. But this only created a small incremental value for HSBC because it failed to become a top-three player in most major markets outside of Hong Kong.

'They have to find ways to take those positions [such as in Britain and the US] into leadership positions,' he said, adding that its incredible profitability in Hong Kong had come from its leadership here.

Fitch Ratings senior director Peter Tebbutt said HSBC had a small share in some markets because it tended to be prudent, careful and focused on the best quality clients.

Glen Suarez, director of investment at Knight Vinke, said HSBC, which has a larger presence in Asia than its international rivals, should have a great advantage, but the bank had missed opportunities, especially on the mainland and in India.