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Senior HSBC executives should be denied millions of pounds in bonuses next March because the bank’s incentive scheme was misrepresented to shareholders and was therefore void, according to a hard-hitting legal opinion.

HSBC may have misled shareholders into believing the executive bonus scheme was much less generous than it really was, according to the QC’s opinion, commissioned by the rebel shareholder Knight Vinke, which is campaigning for change at the bank.

In advertisements placed today in The Times and other newspapers, the activist fund manager accuses the bank of giving the impression to shareholders that the performance hurdles of the scheme were significantly more demanding than they really were.

Stephen Green, HSBC’s chairman, Mike Geoghegan, the chief executive, Douglas Flint, the finance director, and two retired executives are due to collect bonuses estimated at £5.8 million because of the lax way the scheme rules were drawn up, Knight Vinke said.

Based on a literal interpretation of the scheme, as it was first presented to investors in 2005, executives could have been expected to receive nothing.

HSBC’s top executives stood to gain substantial performance-related pay next March “despite more than $20 billion (£9.7 billion) of provisions for credit and trading-related losses over the past two years”, Knight Vinke said.

Lord Grabiner, QC, has advised Knight Vinke that HSBC may have also breached the Financial Services and Markets Act and the listing rules.

He said the 2005 shareholder approval for the scheme was void and that the bonuses could not be paid out without the bank returning to shareholders with a fuller explanation.

The timing of the assault is designed to cause maximum embarrassment to Mr Green and Mr Geoghegan, who are due to make a presentation to institutions in London this afternoon.

Mr Green is expected to make £1.2 million from the bonus scheme and Mr Geoghegan is in line for £1 million if HSBC meets earnings expectations.

Eric Knight, Knight Vinke’s founder, is calling for a bolder strategy from HSBC. He told The Times yesterday that spinning off the Hong Kong/Chinese business and headquartering and listing it in Shanghai could create tremendous value for shareholders.

The HSBC 2005 Share Plan for senior executives was intended to pay out up to seven times salary for top performance. HSBC told shareholders in the notice document for the 2005 annual meeting that the scheme was determined by “the absolute growth in earnings per share achieved over the three years” of the 2005-2007 period.

Shareholders approved the resolution but only later did HSBC clarify to all investors how its version of earnings per share (EPS) growth would be calculated.

Rather than simply calculating EPS growth over the three-year period, it aggregates year 0-1 growth, year 0-2 growth and year 0-3 growth. That means year 1 growth is treble-counted and year 2 growth is double-counted.

HSBC will have achieved simple EPS growth of about 18.2 per cent over the three-year period, assuming flat profits for 2007, Knight Vinke estimates.

That would generate no bonuses at all. HSBC’s definition of EPS growth, by contrast, will have been 51.6 per cent — a figure that triggers near-maximum payouts.

HSBC last night denied that shareholders had been misled. Details of the scheme were discussed with 50 top shareholders as well as the Association of British Insurers ahead of the approval vote, a spokesman said.

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