HSBC has warned the markets for the last six months that it is debating whether it will relocate its London headquarters amid constantly changing regulations in the City.
Now, it looks very likely it could go ahead after some of its most prominent shareholders publicly declared that they would back a move because banks are getting fed up of regulators “changing the goal posts.”
“Given the situation, where there is no clear end point in terms of ever increasing capital requirements, and the fact that they are being put at a competitive [dis]advantage, and the fact that we will see better growth, earnings and dividend prospects unless the regulator changes tack, then logically we would be supportive of a move if they chose to do that,” said David Cumming, head of equities at Standard Life, which owns a 1% stake in HSBC, in BBC Radio 4’s Today programme.
In April this year, HSBC officially announced it is looking into whether to move its headquarters outside the UK, after weeks of rumours. The giant investment bank launched an “immediate review” on whether to move its HQ.
This is what chairman Douglas Flint said in an announcement at the time (emphasis ours):
As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK. As part of the broader strategic review taking place, the Board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment. The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is underway.
Shares are up over 1% this morning on the declaration by Standard Life:
Standard Life is the latest in a line of investors that have pointed out why HSBC’s potential relocation could be a great idea.
A few months ago, Bank of America Merrill Lynch’s analysts pointed out in a note 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.
HSBC has not explicitly said where it would move if it does decide to move away from the UK, but most analysts believe Hong Kong is the obvious choice due to the bank’s roots in the country.
Despite the expense of moving locations, analysts reckon 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.
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