Knight steps up battle with HSBC

26 November 2007
HSBC has once again been accused of misleading its shareholders over its directors' bonus plan by activist investor Eric Knight.

In the latest in a series of complaints, Knight has alleged that the firm has misled investors with regards to the amounts being paid out to Directors as part of the HSBC bonus scheme and has called for the pay and perks plan to be resubmitted to shareholders.

Knight argues that full details of the plan were only clear to many shareholders months after they approved the scheme, when the firm's annual report was published and claims the unconventional way in which HSBC allocations are calculated means the directors are in line for share awards, regardless of whether the firm generates an increase in earnings over a three-year performance period.

Knight's new allegations are based on HSBC's share plan adopted in May 2005 which 'gave the impression that the performance targets were significantly more demanding than they are in reality'. Since the bank's Household division began sliding into difficulties, it has been forced to take billions of pounds of provisions, which has given Knight further reason to push for a strategic overhaul.

Yet despite Knight's investment fund, Knight Vinke only owning a 1 per cent share in HSBC, he has proved a formidable adversary and a thorn in the side of the bank's Chairman, Stephen Green. What's more, his arguments are backed by a number of international investors.

The fresh attack came on the eve of a major HSBC meeting with shareholders, in which it will set out progress on strategic plans formulated back in March. The firm is currently trying to beef up its Asian operations to counter the downturn in the US markets, where any dalliance with the sub prime mortgage sector it set for disappointing returns.

HSBC has hit back at the allegations by insisting it has been fully transparent in its consultations with the top institutional investors and the Association of British Insurers, and stressed that HSBC's management does not receive anywhere as much pay as US rivals.

Knight has also accused the bank of spreading itself too thinly across the globe and neglecting the opportunities for expansion in high-growth markets such as China.

Furthermore, speculations have surfaced regarding the possibility of HSBC cutting its £2billion French arm which typically deals with personal financial services and small business banking operations. Other possibilities include transferring the bank's headquarters to Shanghai in order to acquire a domestic bank – an impossibility at present due to China's foreign ownership regulations.

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