HSBC’s decision in October 2025 to take full control of its subsidiary, Hang Seng Bank, has raised speculation as to whether the banking giant is preparing to split its Western and Asian interests – and as to how far political risk considerations are driving such momentous decisions.

HSBC’s move has thus drawn renewed attention to the challenges of operating across Asia in the face of Sino-American tensions, and to the stark choices that would face executives in the event of a Taiwan, or significant, related crisis.

Boards and management at regional businesses should watch and learn from HSBC’s plight, then, and take appropriate actions to protect their own interests. SVA can advise on how best to respond on a case-by-case basis.

The share purchase

On 9 October 2025, HSBC announced plans to privatise Hang Seng Bank. The scheme of arrangement entailed HSBC’s buying the roughly 37% of Hang Seng Bank that it did not control, at a 30% premium, for about HKD106 billion.

The deal drew attention to the impact of Hong Kong’s property slowdown on Hang Seng Bank’s book of loans. After all, other big businesses, such as New World Group, have faced considerable pressures, as the value of local real estate has fallen.

Some reports stressed that the volume of Hang Seng Bank’s non-performing loans has risen steeply, with impaired debt up 85% in the first half of 2025, on the same period in 2024. That bad debt may now have a value of around HKD25 billion.

Worse, expectations are that the problem will deteriorate, with many corporate bonds coming to maturity in Hong Kong in 2026. As such, in pure, financial terms, HSBC’s move may simply amount to “fixing the roof” ahead of a storm to come.

Such action could prove commercially wise. Buying at a low ebb could mean that the 30% premium turns out to be cheap, and the merger will surely allow for synergies. HSBC and Hang Seng together account for perhaps 40% of bank deposits in Hong Kong, and rumours in the local community have long stressed that Hang Seng has major holdings of gold.

Political Risk - HSBC is of systemic importance

Of course, HSBC’s decisions receive close scrutiny not only for commercial reasons, but also because the stakes in relation to political risks are high. It is one of only three banks permitted to issue paper currency in Hong Kong, and provides payment services for the local government. HSBC is clearly a systemically important institution in the city.

Equally, Hong Kong is a crucial financial centre for Beijing, as it has China’s only freely tradeable currency, and boasts financial expertise integral to projecting Chinese economic sway around the world. Accordingly, HSBC has systemic importance in Beijing, too.

However, HSBC is also something of a historical anomaly. Its headquarters in the UK and listing on the London Stock Exchange means that the bank must answer to British as well as Hong Kong regulators, despite its commercial centre of gravity being in Asia and, in particular, in Hong Kong.

Regulatory conflicts

Serving different masters has become increasingly hard to do, though, as regulatory conflicts have intensified owing to geopolitical tensions.

In April 2020, for instance, the Bank of England required that HSBC (and other UK-based banks) not to pay a dividend, in response to the pandemic lockdowns. That decision provoked much ire in Hong Kong, not only because the city had succeeded in controlling the disease’s spread, but also because local retail investors relied on HSBC’s dividends for pension payments.

More recently, criticism has emerged over HSBC’s compliance with Hong Kong’s rules on the Mandatory Provident Fund (“MPF”), which have resulted in the refusal of payments to holders of British National Overseas (“BNO”) passports living outside Hong Kong to collect their deposits.

Looking forward, British taxation policy could prove another point of friction. An imposition of levies on banks registered in London would prompt claims that an impecunious British government is seeking to milk Hong Kong’s cash cow.

Preparing for a break-up?

Observers are thus asking whether the Hang Seng purchase amounts to a first step towards separating HSBC’s Asian and other interests, as has been demanded by shareholders such as China’s Ping An Insurance.

A division would make some sense. Companies across Asia are ever more at risk from government actions taken for geopolitical reasons; and those beholden to regulators on either side of virtual “Cold War” frontiers are especially vulnerable.

Sooner or later, then, boards may have to choose sides – and particularly so if a crisis in the Taiwan Strait prompts the US to attempt to eject China (and so Hong Kong) from its financial system. In such a worst-case (and currently unlikely) scenario, the formal separation of HSBC’s interests would have to be swift.

As such, it is noteworthy that this privatisation follows an October 2024 announcement of plans to reorganise HSBC into four units, an Asian and Middle Eastern unit, a UKbased bank with European appendages, and separate Corporate Banking and Private Wealth divisions.

That shift recalls Ping An’s demands, while HSBC’s recent failure to appoint a chairman, and the closing of its internal geopolitical advisory unit, might also reduce internal criticism of any such move.

Watch and learn

The Hang Seng Bank share purchase, then, is a further suggestion that HSBC may well separate into Asian and western units in due course, so as to reduce its exposure to increasing geopolitical risks.

Such a move would not necessarily be damaging to shareholders, though, depending on how it was executed, and explained.

Other companies operating in Asia would be wise to watch and learn from the “world’s local bank”, as they may face comparable choices in the face of Sino-American tensions.

SVA can advise companies on how best to address such geopolitical challenges.

SVA

SVA (www.stevevickersassociates.com) is a specialist risk mitigation, corporate intelligence and risk consulting company. The company has a great deal of experience in handling geopolitical and other risks.

The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA’s staff members have a wealth of experience in investigating and dealing with international asset searches, litigation support, political risk assessments and in dealing with fraud and financial crimes.