HSBC shares fall as US looks to punish it over its support of China over Hong Kong

Shanghai — HSBC Holdings, which draws more than two-thirds of its pre-tax income from Hong Kong, slumped as advisers to US President Donald Trump were said to be discussing a move to punish banks in the city and destabilise the currency peg to the dollar.

HSBC was named as a potential target, Bloomberg News reported, citing people familiar with the issue. US secretary of state Michael Pompeo singled out Peter Wong, the bank’s Asia Pacific CEO, last month for signing a petition supporting “Beijing’s disastrous decision to destroy Hong Kong’s autonomy”.

HSBC fell as much as 4% in Hong Kong, the most in more than three weeks, making it the biggest drag on the benchmark Hang Seng index. The bank’s stock fell 3.5% in London early trading, extending this year’s loss to 36%. A Hong Kong-based spokesperson declined to comment on the US report.

“Disruption to the currency peg and dollar funding, with HSBC reporting in US dollars, could erode revenue and accelerate material changes in its dual listing and structure,” Bloomberg Intelligence analysts Jonathan Tyce and Francis Chan wrote on Wednesday.

London-based HSBC has been walking a political tightrope as it seeks to expand in China in a bid to boost profits, shifting away from struggling operations in Europe and the US. Last month the bank endorsed China’s new security law and is now drawing further criticism from politicians in the US and the UK.

Pivoting towards Asia

HSBC announced last month that it will revive a huge cost-reduction plan that had been put on halt due to the coronavirus. The plan, which includes cutting 35,000 jobs globally, is part of a move by HSBC to pivot more of its business to Asia. The bank also plans to shrink US retail, French and non-ring fenced UK exposure.

In a statement on its official WeChat account in June, the bank pledged to continue to invest and support the Chinese economy after speculation in local media that its huge restructuring plan would mean an exit from China.

Some top advisers to President Donald Trump want the US to undermine the Hong Kong dollar’s peg to the US dollar to punish China for recent moves to chip away at Hong Kong’s political freedoms, according to people familiar with the matter. The proposal, however, hasn’t been elevated to the senior levels of the White House, and faces strong opposition from others in the administration who worry such a move would only hurt Hong Kong banks and the US, not China, said the people.

The US clearing licence is vital to HSBC’s global operations and the bank is one of the largest international lenders operating in America. HSBC recently hired James Forese, a former senior executive at Citigroup, to its board as it looks to revamp its global business including its underperforming US unit.

HSBC is also the largest note-issuing bank in Hong Kong, putting it at more risk than Standard Chartered and Bank of China (BOC) Hong Kong Holdings, should the US limit its ability to buy dollars.

HSBC was down 3.1% as of 3pm in Hong Kong. Standard Chartered fell 2.8% and BOC Hong Kong lost 2.4%.

Bloomberg