LONDON (Reuters) - A rebel shareholder in HSBC Holdings (HSBA.L) again urged Europe’s biggest bank to sell its U.S. business, saying if it didn’t the unit may have to file for Chapter 11 protection from creditors.
Knight Vinke Asset Management (KVAM) has urged HSBC to sell or “ring-fence” its HSBC Finance (HFC) unit, which is largely made up of the Household business it bought for $14.8 billion in 2003. The investor says HSBC’s shares would be 200-300 pence higher if the bank didn’t own the business.
HSBC shares closed on Friday at 823 pence.
KVAM, led by Eric Knight, renewed its criticism before HSBC releases its notice of issues this week for its 2008 annual shareholder meeting, to be held in May.
KVAM published a letter on its Web site on Sunday that it sent to Simon Robertson, HSBC’s senior independent director, dated March 14. It said HFC carries too much debt and will require significant additional capital from its parent just to survive.
“As of today, selling the business may no longer be possible on acceptable terms but it may still be possible to spin it off or otherwise ‘ring fence’ it,” the letter said.
”If all else fails, then the best course of action may well be for HFC to file for protection from its creditors under Chapter 11.
“We believe that HFC has an unsustainable business model and is structurally unable to support its $150 billion of debt,” KVAM said in its letter, saying the business creates risk for the whole group. “In effect it adds very high credit risk to very high business risk.”
HSBC was not immediately available for comment.
HSBC last month rejected the proposals to walk away from HFC as “unthinkable and irresponsible.”
KVAM, which owns less than 1 percent of HSBC shares, also criticized proposed revisions to HSBC’s long-term incentive plan for senior executives and the way the process is being conducted.
It said HSBC consulted top shareholders on its proposals in January, and revealed the letter sent out by the bank. It said the poor structure of HSBC’s executive compensation schemes is at the heart of its concerns about the bank, and the new plan fails to address the weaknesses of the existing plan.
Reporting by Steve Slater; Editing by Tom Hals