Market Loop - HSBC break up pressures grow

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12th August 2022

Bite-sized business news from the UK and beyond

Good morning Here we are in the middle of our second heatwave in the space of a few weeks with temperatures set to reach 37C over the weekend. The good news is there will be some much-needed showers next week, and temperatures will start to drop closer to average for the time of year, but could rise again towards the end of the month.

Today's stories

HSBC break up pressures grow
Europe's rivers are running dry

BANKS
HSBC break up pressures grow

What happened?
HSBC’s largest shareholder is ramping up the pressure on the banking giant to split its Asian business from the rest of the world. Yesterday sources close to the Chinese insurer Ping Am, which owns 8% of the British bank, claimed that a breakup could create up to $35bn of extra value.

How did we get here?
HSBC is one of Britain’s largest banks and also has a vast international footprint with 7,500 offices in 80 countries.

In recent years the bank has sold off underperforming divisions in the US and France and is trying to exit Turkey, Armenia, Greece and Oman. It’s all part of a strategy to focus more on the Asian business which is growing faster and more profitable than the European arm.

But Ping Am is unhappy with the speed of pivot to the East
The insurer has been pushing to separate HSBC into East and West since February, as it was frustrated by the bank’s falling share price. Investors have also been annoyed by the fact that British banking regulators forced HSBC to stop paying dividends during the height of the pandemic, cutting a source of income for shareholders.

There’s also a political motivation for the split
Ping An believes breaking up the bank would create an independent Asian business that is more agile, more autonomous, more profitable and less prone to political wranglings between China and the West.

HSBC’s position straddling across Europe and Asia has left the bank subject to political pressure from governments on both sides, leaving it sometimes caught between the two.

But HSBC disagrees with a breakup
The bank’s management has insisted that the group’s success was dependent on maintaining its global network. It also says that a break-up would be a very complex and costly and hamper the growth of the Asian division.

Other stories to keep you in the loop

Energy bosses meet with government but no specifics agreed on cost of living crisis
Heathrow insists airport chaos easing thanks to new passenger limits
McDonald's plans to reopen in Kyiv and western Ukraine
One in 20 big businesses have offered workers a cost-of-living bonus
Sainsbury's to stop sale of disposable barbecues
How Disney overtook Netflix in streaming wars

ENVIRONMENT
Europe's rivers are running dry

What happened?
Extreme heat and low rainfall threaten to dry up a key part of the Rhine river, blocking passage through one of Europe’s most important shipping routes.

Why it matters: A shutdown of the Rhine, Germany’s most important river route and a passage for coal and fuel throughout the continent, could not come at a worse time given Europe’s current energy crisis.

Every year around 300m tonnes of goods are shipped along the Rhine between Basel, where Switzerland, Germany and France meet and the North Sea.
The looming shutdown has already contributed to rising gas prices and stresses on German coal plants, which rely on supplies delivered via the river.

In the UK water levels in several major river systems are very low, adding to concerns that much of England could slide into drought following the driest July since 1935.

Zoom out: Italy’s Po, France’s Rhone and Garrone, and the Danube (the EU’s longest river and another major trade route), are also at precariously low levels. Trade along rivers adds $80bn to the EU’s economy, so disruptions can cause serious economic damage.

And it’s not just energy that would be affected. The transport of everything from grain to chemicals to car parts would be disrupted—not to mention tourism in the region, which depends on river cruise ships.

Bottom line: As heatwaves and droughts become more frequent and severe due to climate change, rivers are becoming a less reliable way to move goods and people.

Stat of the day

Disney now has 221.1m subscribers across its streaming platforms globally, overtaking Netflix, which has 220.7m, to become the biggest streamer

Interesting links from around the web

How investing can help you beat inflation
How to get TikTok’s algorithm to show you things you like to watch
10 techniques to become a better storyteller

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Market Loop - HSBC break up pressures grow

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