HSBC facing flak in Sri Lanka, UK

Sri Lanka isn’t the only country where HSBC has triggered controversy. In London, Eric Knight, an HSBC shareholder, has demanded a review at HSBC’s long term operations. According to newspaper reports from there, Knight, managing director of New York-based Knight Vinke Asset Management, last week invited other disgruntled shareholders to help him force HSBC to review its “underperforming” strategy and global operations – a demand that the bank has resisted.

The reports said that Stephen Green, chairman of HSBC, defended the bank’s strategy and vowed to carry on investing in emerging markets. “We have a clear strategy, it is focused on investing and developing our powerful emerging markets franchises. We will continue to do that,” Green was quoted as saying, pointing to HSBC’s agreement in the week to buy a controlling stake in Korea Exchange Bank for $6.3 billion. “That was part of a strategy that had been carefully thought through from the beginning of the year.”

HSBC’s board is due to meet in the next few weeks to consider a formal response to a letter it received this week from Knight’s firm which has built up a £200m shareholding in the bank. The reports said that the 10-page letter suggests HSBC is undervalued by as much as 50 per cent both because of the market’s uncertainty about its long-term strategy and management complacency about its underperformance.

The letter, also signed by Calpers, the influential Californian activist pension fund, details a range of grievances, including concerns over the composition and structure of the board, corporate pay policies and the bank’s global asset portfolio.

However the reports said some of HSBC’s largest shareholders last week questioned the timing of Knight’s campaign, which comes amid broader concerns about a shortage of liquidity in the banking system. “This is the wrong target at the wrong time,” said one top 10 HSBC shareholder. “Eric is able but he is not saying anything new. It looks a year too late to us.”