In Focus: HSBC and the potential move

Picture of businessman
HSBC considers move to Hong Kong

Today’s news that HSBC is cutting 8,000 domestic jobs as well as re-branding all their UK branches has further encouraged speculation from media and industry analysts such as The Guardian and City AM, alongside Shore Capital and Investec.

The official stance on the rebrand and job cuts is that it is part of a wider corporate restructure in the UK that allows the bank to adhere to new domestic regulations that come into force in 2019. These laws require banks to differentiate between investment and retail operations.

Stuart Gulliver, the bank’s chief executive, told the annual general meeting last Friday that the location of its retail banking operations in Birmingham “underlined our commitment to communities throughout the UK and brings our ambition of becoming the bank of choice in the UK a step closer”

THE IMPACT ON THE UK

Despite the bank’s previous involvement in a tax avoidance scandal (in which HSBC’s Swiss bank helped customers avoid paying taxes in their country of residence) the amount of taxation they pay on their revenues significantly contributes to the UK economy.

Last year alone the bank paid taxes of $2.4bn (£1.56bn) and overall they employ 48,000 people in the UK. The economic impact of HSBC’s exit from the UK would not only have a significant impact in terms of government revenue, but would also be detrimental to UK employment figures.

SO WHY MOVE?

For HSBC in particular, there are a number of reasons why the bank may decide to leave the UK, one of which is the stronger banking regulations that have been promised by Chancellor of the Exchequer George Osborne.

As well as ensuring that the investment and retail sections of the bank are separately ring-fenced, the government is also looking to implement new laws that could hold senior banking officials to account for the actions of the bank, particularly where there is a culture of risk.

Douglas Flint, chairman of HSBC, told investors at the AGM: “One economic uncertainty stands out, that of continuing UK membership of the EU.”

Indeed across the banking sector, EU membership is a key concern with Deutsche Bank also having made plans to move branches out of the UK should a Brexit occur.

Following the 2015 general election, there has also been a government emphasis on raising further funds from the banking sector through the use of taxation and a banking levy. Currently this means that banks are expected to pay 0.21% tax on their debts (from 1 April 2015), a dramatic increase from the 0.15% paid last year.

As a result of the way in which the levy is calculated, international banks such as HSBC are hit the hardest. The levy is charged on the company’s entire balance sheet as opposed to the accounts of UK branches only, meaning that the amount paid – although seemingly small – can amount to millions.

WHERE TO MOVE TO?

According to HSBC CEO Stuart Gulliver, “Hong Kong is an obvious head-office location for HSBC and Standard Chartered.”

He added: “The issue will come down to the size of both banks relative to Hong Kong GDP and the broader role of Hong Kong versus Shanghai in terms of the longer-term positioning of the Chinese financial system.”

As a location option, Hong Kong appears to be a plausible move, not only because it is where the company originated from, but because it matches with the bank’s strategy to focus its business towards Asia. This is where 80% of the bank’s profit is generated, in comparison with the 3% raised in Europe