London Briefing Fiona Walsh:Right target, shame about the timing . . . that was the initial reaction in the City last week to news that banking giant HSBC is the latest company to come under fire from activist US investors.
The New York-based fund management firm, Knight Vinke Asset Management (KVAM), has certainly chosen a sizeable target - HSBC is Europe's biggest bank and the fourth-largest in the world.
Although it has bought only a small share stake, the rebel shareholder is now calling for sweeping changes. It is also attempting to whip up support among the bank's other institutional investors.
Early reaction to the move was muted, with some shareholders observing that, while HSBC has made many strategic errors in the past - not least its costly foray into the now bombed-out subprime mortgage sector in the US - it has made good strides over the past year towards rebalancing its business.
And, after a lengthy period of underperformance, including the first profit warning in its 142-year history earlier this year, HSBC shares have actually fared rather better than the rest of the banking sector in recent months.
But KVAM, headed by former New York investment banker Eric Knight, is determined to press ahead. Dismissing suggestions that he has made his move about a year too late, Mr Knight outlined his case against HSBC in a detailed 10-page letter delivered to the board last week.
Now doing the rounds in the City, the letter catalogues a lengthy list of failings at the group. It lacks focus and "is seeking to be all things to all people", Mr Knight says, claiming the widespread uncertainty over the bank's strategy has left its shares undervalued by as much as 40 to 50 per cent.
He is unhappy, too, with the position of HSBC executive chairman Stephen Green, formerly chief executive of the group, and wants to see the role downgraded to a non-executive post. Mr Green is, he feels, too closely associated with the failures of recent years and Mr Knight also wants greater responsibility and autonomy to be given to HSBC's non-executive directors.
Far too many of the group's resources are in the mature European and north American markets, rather than higher-growth emerging markets, Mr Knight says, although the bank is attempting to remedy this with deals such as the £3.1 billion (€4.55 billion) takeover of Korea's sixth biggest lender.
Other criticisms include management incentives, which he believes do not properly align the interests of shareholders and senior management. Targets are simply not demanding enough, he says, and the peer group used for comparison excludes many overseas banks which have outperformed HSBC in recent years. He has crunched numbers to show that, under the current incentive schemes, executives could receive maximum payouts of seven times salary even if there were to be absolutely no net increase in earnings over three years.
Many of these concerns have already been outlined to HSBC, whose finance director, Douglas Flint, met Mr Knight in New York three months ago.
Clearly, it did not go too well. Mr Knight says in his letter: "The fact which troubled us most following KVAM's meeting in June was our feeling that there appeared to be little sense of concern within management about the performance of the group - almost to the point of complacency - and a fundamental lack of ambition."
The accusations go on at length - HSBC's huge exposure to the US housing crisis, the damage done by its rush for diversification and the underperformance of its core operations.
Mr Knight closes his letter by demanding that HSBC instigate a formal strategic review of the entire business. Significantly, the letter is also signed by Dennis Johnson of Calpers, the powerful California state pension fund which is backing KVAM.
Mr Knight has made it clear that he's in for the long-term, whether or not HSBC bows to his demands for a shake-up.
So far, HSBC has said little publicly in response to the string of accusations. But it would be a mistake for it to dismiss its vocal new American shareholder as merely another activist in search of a quick turn, or to think that the "world's local bank" is too big to be taunted in this way.
That was the first reaction of Shell Transport and Trading three years ago when Mr Knight took a tiny stake in the oil giant and demanded it simplify its dual Anglo-Dutch structure. He persevered and eventually got his way.
Whatever the outcome of Mr Knight's campaign, the unforgiving spotlight now being cast on HSBC's operations will make for some tricky months - or even years - ahead.
Moreover, it may not be alone. The American activist sees "a lot of scope" for further activist forays in Britain and has apparently got two further targets in his sights.
Fiona Walsh writes for theGuardian newspaper in London
