UK headquarters
HSBC has ordered an immediate review of whether it should continue to be headquartered in the UK, citing the impact of regulatory and structural reforms in a move that comes less than two weeks ahead of the UK general election.
Douglas Flint, HSBC chairman, is due to say at the bank’s annual general meeting on Friday that the decision is part of a “broader strategic review taking place” at the bank.
The bank needs to determine “the best way to support the markets and customer bases critical to our future success”, Mr Flint is expected to say, according to an HSBC statement.
“In this regard, we also have to take fully into account the repositioning of our industry being driven by the regulatory and structural reforms which have been put in place post crisis.”
The bank has its headquarters in the UK but also a dominant, historic and strongly profitable franchise in Hong Kong. It moved its headquarters to London from Hong Kong in 1993, four years ahead of the territory’s return to China.
In 2006 it raised the prospect of moving its headquarters away from the UK, citing the country’s tax regime. Mr Flint did not indicate where HSBC might move its headquarters to if it does leave the UK.
All the main UK political parties have committed to maintaining or raising a levy on British banks to raise funds to help pay down the nation’s budget deficit or fund giveaways such as free childcare.
HSBC has also come under criticism recently after it emerged that its Swiss private bank helped thousands of rich clients dodge paying taxes. Mr Flint and Stuart Gulliver, chief executive, faced a torrid time in front of MPs when they were questioned about the activities of the Swiss private bank and Mr Gulliver’s personal tax affairs.
“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,” Mr Flint is expected to say.
“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 under way.”
The Top Lane
For four years, the British government has been topping up its coffers with a special bank tax. Enacted as a way of recouping part of the cost of the 2008 financial crisis, the levy on deposits and other liabilities is politically popular and has risen almost every year.
Last month, HSBC announced that, as part of its ringfencing plans, it would move its UK retail and business operations to Birmingham by 2019.
Chancellor George Osborne, of the ruling Conservative party, has said that Britain’s bank levy, expected to raise more than £3bn next year, is to become a permanent fixture of the British tax system.
Danny Alexander, the chief treasury secretary of the Liberal Democrats, which are in ruling coalition with the Conservatives, has pressed Mr Osborne to add an extra £1bn to the levy.
Labour, the main opposition party, wants to raise the tax. However, Chuka Umunna, the shadow business secretary, said he was “not that alarmed” by HSBC’s announcement.
“In light of the regulatory reform that’s happened in recent years, it’s sensible to carry out a review,” he told CNBC, adding that this was an exercise HSBC does periodically.
The UK bank levy applies to all banks and building societies operating in the UK. British banks are hit harder because they are taxed on their global balance sheets. Foreign banks with major UK operations like Goldman Sachs and JPMorgan Chase are taxed only on their British balance sheets.
HSBC generated $61.25bn in external net operating income in 2014, with $14.4bn coming from the UK and $12.7bn from Hong Kong. However, after impairments and other provisions, the UK made a $56m loss before tax while Hong Kong made an $8.1bn profit.
Of HSBC’s $8.7bn in non-current assets in 2014, $8.7bn were in the UK and $12.4bn in Hong Kong.
News of the review comes less than a month after two big shareholders in Standard Chartered said they want the bank to consider moving its headquarters to Singapore or Hong Kong in the wake of a further levy increase.
Most of the bank’s 86,000-plus workforce are based in Asia, the Middle East and Africa, but its headquarters and top managers are in London.