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HSBC Shares Unruffled by Surprise Activist Assault

Shares in HSBC Holdings were untroubled on Friday after a surprise late-night assault from activist investor Knight Vinke, as analysts said Europe's biggest bank was already working to address shareholder worries.

The U.S. investment fund said late on Thursday that it had taken a stake in HSBC and intended to hold talks with the board and other institutional investors over the "future direction and governance of the group."

A Knight Vinke spokesman said on Friday that its concerns covered a range of strategic issues, but declined to comment on details. HSBC has in the past faced calls to increase its focus on emerging markets, which it is already doing.

Knight Vinke, which says its stake is below 1%, is one of the most high-profile activist funds, having waged successful campaigns on corporate giants including oil major Shell, Dutch firm VNU and France's Suez.

Its move on HSBC comes just months after an assault by activist hedge fund TCI on Dutch bank ABN Amro prompted the biggest-ever banking takeover battle.

This time, however, analysts and investors questioned the activist fund's timing, and said they expected muted support.

HSBC is already recovering from the impact of its first-ever profit warning earlier this year, and its strong capital position helps it outperform peers in a turbulent equity market.

That warning in February, a result of U.S. mortgage woes, stoked criticism of the banking giant's strategy and particularly the 2003 purchase of U.S. lender Household, and its shares still trade near their level at the start of 2004.

But the bank has since courted investors by saying it will focus spending on Asia and emerging markets, most recently by buying a majority stake in Korea's KEB.

Too Late?

"There are some reasonably sensible triggers for the assault -- the acquisition of Household; continued investment in the investment banking business with, so far, muted returns; and you could argue they could take a pop at the recent acquisition of Korea's KEB, for which we feel they might have overpaid," analyst James Hutson at Keefe, Bruyette & Woods said.

But he said the bank appeared to have ring-fenced its problems in the U.S. mortgage market, had minimal exposure to the current liquidity crisis and was still basking in the glow of record first-half profit.

"We agree there are some good reasons to go for it, but given the recent outperformance, I'd expect discussions to drag on and on, with the impact probably marginal," Hutson said.

HSBC shares were down 0.1%, giving the bank a market capitalization of just over 104 billion pounds, and outperforming a 1.6% drop in the DJ Stoxx European index of banking stocks.

"HSBC has turned a corner and are moving in the right direction anyway -- so they are a little bit late," said another analyst, who asked not to be named.

Knight Vinke has in the past targeted large, complex companies, acquiring about a 1 percent stake and then persuading other investors to back its fight.

The fund's spokesman said it was prepared for a long process: "We feel confident of our timing; we've spent over six months doing research."

A spokesman for HSBC said it always engaged with shareholders who raised concerns, but added: "(Chairman) Stephen Green and (Chief Executive) Michael Geoghegan have a clear and well articulated strategy and one that we are implementing and starting to see the benefits from."