HSBC’s London HQ is becoming less of a logical choice, and there are good reasons that jumping ship and moving back to Hong Kong may be a good idea.
That’s the message from Bank of America Merrill Lynch’s analysts, who pointed out in a note early Monday that HSBC (which was headquartered in Hong Kong until 1993) has two good reasons to move back.
Both are to do with increases in regulation and tax brought in by the British government in recent years:
The requirement for UK banks to split out retail and domestic corporate operations undermines London as the natural base for HSBC’s global operations… If it is not able to integrate in London any more, Hong Kong (with £220bn in retail and SME deposits) becomes a more logical place to book and run global operations.
Despite the expense of moving locations, the analysts reckon it the billions that a move would cost would be offset by no longer having to pay the UK’s bank levy:
The UK bank levy was originally announced as being aimed at the large, short-term wholesale funding dependence of the UK domestic banks. It has since morphed into a tax on any balance sheet not funded by UK deposits.
HSBC’s US$1.2bn potential levy is now more than a third of the total and rising. With the chancellor recently stating the levy is permanent, the cost of moving HSBC’s headquarters out of the UK declines in relative size. We believe a move would likely be a several-billion dollar challenge but potentially one the market could reward the group incurring.
HSBC didn’t actually mention the bank levy in its announcement that it would look into headquartering somewhere else. But it has become a much bigger slice of HSBC’s tax bill in recent years — the levy has been hiked from 0.05% to 0.21% of the bank’s global balance sheet since 2011 (during which time there have been eight increases).
It made up 12.5% of HSBC’s tax bill last year, when the levy was at 0.156%:
The Sunday Times gave a further indication this weekend that HSBC is thinking seriously about a move, with the scoop that it could spin off the Midland Bank again. HSBC took over Midland in 1992 and made it a major part of its UK retail banking arm.
Here’s the Sunday Times:
The move could be considered as part of the far-reaching review by Britain’s largest bank, announced on Friday, into whether to move its headquarters to Asia amid rising costs and increasingly onerous regulations in the UK.
If HSBC were to split off Midland, it would create a powerful new force in retail banking, something that would chime with the political mood of wanting more competition in the sector.