HSBC plans to warn its largest shareholder that its demand to split up the bank would be costly, take years to complete and alarm some of its largest clients.

The 157-year-old bank has hired Goldman Sachs and Robey Warshaw to come up with a detailed defence strategy, as it resists Chinese insurer Ping An’s call to divide its Asian and western operations, said people familiar with HSBC executives’ thinking.

Ping An, which owns around 9.2 per cent of HSBC, started a public campaign last month, arguing that the bank may no longer be able to safely navigate worsening US-UK-China geopolitical relations.

The insurer has grown frustrated with the bank’s share price, the slashing of a once predictable dividend prompted by the pandemic and has accused executives of repeatedly missing financial targets, the Financial Times has reported.

But HSBC’s top leadership plans to construct a case that splitting the group would destroy value, rather than create it, the same people said.

The bank’s top ranks is seeking to argue that a division would require the reissuance of billions of loss-absorbing debt, would need regulatory approval in the UK, US, Hong Kong, Singapore and China and would take at least two to three years to complete, distracting management from its already slow-moving turnround efforts.

Executives will also warn that breaking up HSBC’s 64-country network would result in the loss of big multinational clients such as Unilever and GlaxoSmithKline, which rely on it to remit money around their own far-flung operations.

Such companies could be wary about reliance on China’s central bank for financial support and their data being stored in China or Hong Kong, the bank will say.

Similarly, executives will argue that HSBC’s global trade finance operations, top-10 foreign exchange trading business and top-three dollar clearing operations all require a seamless global network, which could be undermined by a split between Hong Kong and London-listed entities.

In the discussions with HSBC’s board, Ping An has used the break-up of fellow insurer Prudential as a model, claiming its three independent units — Jackson National, Prudential Plc and M&G — are now worth $5bn more separately than as part of one group in 2019, people familiar with its position said.

“HSBC has three unique businesses and breaking it up would destroy its network value,” one executive told the FT in response. “Splitting an insurer with largely domestic clients might work, but not a global banking operation.”

The bank will challenge Ping An to come up with a technical plan on how the break-up would be executed, with sufficient detailed to win regulatory approval.

“The ball is in their court,” another person close to the bank said.

Ping An’s pressure campaign is being led by James Garner, its chief capital markets officer, who is responsible for the entire investment and who previously worked at HSBC and Morgan Stanley as an analyst covering insurers, including his current employer.

“The engagement hasn’t been of a level and intensity that satisfies Peter [Ma, Ping An’s founder and chair] or his top team,” said a person familiar with the meetings between the two sides.

“They feel ignored. And Peter himself is under pressure from his own shareholders and the insurance regulator in China, which is worried about the earnings shortfall”, after the Bank of England banned HSBC from paying a dividend in 2020, which was then restored at only half the previous level in 2021.

While HSBC chair Mark Tucker has a good personal relationship with Ma from his days running Asian insurer AIA, since he joined HSBC in September 2017 the bank’s stock price has fallen 33 per cent, hitting a 25-year low in September 2020.

After formulating a strategy, HSBC’s top executives will attempt to resolve the dispute behind closed doors, the people familiar with the plan said.

It is likely that Tucker and HSBC chief executive Noel Quinn will offer to accelerate their cost-cutting plans, which have fallen behind schedule and drawn criticism from Ping An in meetings.

At the end of 2021, the bank employed 219,697 people, a reduction of only 15,000 from February 2020 when Quinn said he expected headcount to fall by about 35,000 within three years.

The programme was paused for three months at the start of the pandemic, but was restarted in June 2020. Over the course of last year it has removed only 6,362 full-time roles and increased the number of contractors by 500 to 6,192, according to its annual report.

Underperforming parts of HSBC’s network will be re-examined and evaluated for sale, such as what is left of its lossmaking US retail operations, after it sold the bulk of its branches in May last year. It agreed to sell its French consumer lender a month later and could look for more opportunities to divest outside of Asia.

Executives may also explore whether it is possible to partially list some of its more lucrative single-country retail operations as an alternative to a break-up, but the idea has proved to be controversial within the bank.

In discussions, Ping An has cited the example of Hang Seng Bank, which is partially listed in Hong Kong, but majority owned by HSBC. Hang Seng has a $34bn market capitalisation and trades at a price-to-earnings ratio of 20.09 versus 10.65 for HSBC group.

HSBC could offer Ma or another Ping An manager a seat on its board, the people familiar with the bank’s plans said. However, this could prove to be complicated because the two companies compete in insurance in certain markets.

Additionally, a seat would require regulatory approval in the UK and Hong Kong and having privileged access to non-public information on HSBC’s strategy and financial performance would limit Ping An’s ability to buy or sell shares.

HSBC, Goldman Sachs and Robey Warshaw all declined to comment. Ping An said it “will support any suggestions to improve the value of HSBC and improve its business management” and wants “shareholders to participate in the debate and to propose solutions”.

Additional reporting by Arash Massoudi

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