A break up of HSBC Holdings PLC’s Asian unit could unlock US$26.5 billion, or one-fifth of its market value, according to research that could substantiate a push from its largest shareholder to overhaul the bank.

Two other scenarios that could benefit shareholders are for HSBC to spin off the Asian business or just its Hong Kong retail operations into partial initial public offerings, In Toto Consultancy Ltd said in a report on Wednesday.

A disclaimer in the report showed the analysis was commissioned by an independent third party.

Photo: Bloomberg

The UK’s Sunday Times said Ping An Insurance Group Co (平安保險集團), HSBC’s biggest shareholder, was the independent third party that commissioned the In Toto report, without saying where it got the information.

A spokesperson for Ping An declined to comment if it was behind the analysis.

“It is sensible to engage in a deeper conversation about whether a more radical restructuring is necessary for HSBC to not only survive, but thrive over the longer run,” said Asheefa Sarangi, managing director and founder of In Toto. “If HSBC leadership does not fully commit to successful execution, any such transaction would be doomed before it started.”

Ping An had held discussions with the lender to separate its Asia arm to create shareholder value, Bloomberg reported in late April.

The campaign prompted an internal review with executives tapping Goldman Sachs Group Inc on how to rebut Ping An’s case.

Executives at the London-headquartered bank are against the idea of splitting up HSBC, but have begun the analysis in an effort to push back against Ping An’s argument that the bank’s investors would do better from being able to choose to invest in a pure-play Asian business headquartered in Hong Kong.

“Any of these corporate actions could leave stakeholders no worse off than they are today,” Sarangi said, referring to the scenarios In Toto set out. “While spin-offs are expensive and complicated transactions, they can unlock value and accelerate growth for both the subsidiary being spun out and the remaining company to the long-term benefit of the company’s stakeholders.”

The call to split up Europe’s biggest bank is winning support in Hong Kong’s retail base, which owns about one-third of the bank, with some seeing it as a surefire way of preventing a steady stream of payouts from being cut off as during the height of the COVID-19 pandemic.

Still, none of HSBC’s biggest shareholders have come out publicly in support of Ping An’s proposal.

In defense, HSBC said that Asia’s dominant source of revenue is booked with Western clients in the region.

Wall Street paints a cautious outlook for such a strategic shift.

Barclays Bank PLC estimated that a split could shave off 3 to 8 percent of the bank’s market value and cost billions of dollars to pull off.

JPMorgan Chase & Co forecast material changes resulting in the need for “a costly restructuring, unwinding of corporate center costs, a loss of revenue/market share, increased regulatory scrutiny and potential capital and funding dissynergies.”