03/11/2024
HSBC Banks on Split to Divide Operations
This week’s key terms/concepts:
• Split-up: A company reorganising by separating into two or more independent businesses or divisions. This process transfers specific assets, management, and responsibilities into each new part, allowing each to focus on distinct markets, regions, or goals.
• Subsidiary: A company that is fully or partially owned by another parent company, operating independently under its own management whilst controlled by the parent company.
• Asset relocation: The transfer of assets across locations or jurisdictions for strategic purposes.
HSBC announced last week that there will be a reorganisation of their structure, a decision led by Georges Elhedery just six weeks after being appointed Chief Executive. The Bank plans to divide itself into eastern and western markets, as well as HSBC operating as an umbrella company for its now four separate businesses – UK, Hong Kong, Corporate and Institutional Banking, and International Wealth and Premier Banking – with the objective of minimising costs and micro-management.
Why is this important?
The effects that the east/west divide and HSBC’s four separate businesses may create could lead to a lot of operational complexity- the divide will leave HSBC to deal with large administrative issues such as senior employee layoffs and reallocations of assets. In completing this restructuring plan, HSBC aims to better concentrate their focus on each respective market, which may lead to a reduction in the Bank’s overall management teams for non-essential roles within the new streamlined structure. The CEO also stated there are initial targets to save approximately $300 million in costs.
Eldehery insists that there are no geopolitical reasons for the eastern and western divide, but there is speculation that the restructuring follows heightening tensions between the US and China, fuelled more recently by Trump’s proposed 60% tariff on Chinese goods if he gets into office.
Why is this significant for law firms?
HSBC’s restructuring plan will require a large amount of regulatory advisory work surrounding asset relocation, as well as the Bank operating in various regions, which would put law firms in a position to ensure that the process is done in a smooth manner. Legal guidance is necessary in ensuring that the correct asset transfers take place, and a law firm can provide counsel on how the split will impact shareholder value, as approval from shareholders is typically a prerequisite for a split-up to be successful. Tax issues may also be present, such as establishing new tax registrations, transfer pricing compliance and a separate registration for VAT, and it is crucial that HSBC seek out advice from law firms to ensure that they are adhering to regulations.
Clifford Chance and Burges Salmon are two law firms that work closely with HSBC- the former advised HSBC last year on their acquisition of Silicon Valley Bank UK. It is likely that these firms continue to work with HSBC and assist the Bank with critical counsel on cross-border regulatory issues and finance matters. However, due to the size of the restructuring, these firms may not be alone – HSBC have also worked with a large number of firms in the past, including White & Case and Taylor Wessing – so the possibility of other firms being called upon for advice remains.
The process is still ongoing: HSBC plans to make the split effective by 2025.
Lex Weekly 