It’s Huffed And It’s Puffed, But HSBC Is Likely To Remain In The UK
After teasing the UK financial community — and the government — with a thinly-veiled threat to decamp from Britain, HSBC has continued to stoke speculation that it’s looking for more hospitable headquarters.
Back in April, HSBC announced a review of whether to quit the UK, a somewhat provocative statement, coming, as it did, just two weeks ahead of a general election. With the bulk of HSBC’s profits coming from its Asian operations, a return to the bank’s Hong Kong roots appeared to be a distinct possibility.
But earlier this month, unnamed advisors to HSBC raised the possibility of a shift to the west, informing various UK media outlets that HSBC could be eyeing up a new home in New York. With more than $2 trillion in assets, there are few domiciles that could accommodate an institution the size of HSBC, which is almost as big as the entire UK economy. The same advisors also suggested that the US might provide a friendlier regulatory environment for international banks.
Not to be overlooked, Toronto has also made a bid for HSBC, with city representatives meeting the bank’s management on a trip to London’s financial district, Canary Wharf, last week, although mayor John Tory has admitted that his chances of luring HSBC to Canada are relatively slim.
On Tuesday, HSBC stirred further intrigue, shifting billions of dollars of derivatives trades from London to Hong Kong, according to the Reuters news agency, citing sources with direct knowledge of the bank’s trading operations. The shift is aimed at taking advantage of the city’s easier funding and regulatory environment, but could also pave the way for a future move to Hong Kong, by signalling to regulators that the territory can accommodate large volumes of transactions.
But the failure of the Chinese government to fully embrace financial reform could derail a move to Hong Kong. President Xi Jinping has consolidated an extraordinary amount of power in the presidency, denting hopes of a near-term shift to a more balanced, market-oriented economy. The government’s reluctance to expose state-owned enterprises to any significant foreign influence has raised concerns that an HSBC sited on Chinese territory could be absorbed by the Chinese state.
The fact is, the UK has probably addressed the most of the bank’s misgivings about remaining on British soil. Chancellor of the Exchequer George Osborne, the nation’s top finance official, has announced plans to do away with a bank levy, which taxed financial institutions according to their level of assets, and, as such, hit HSBC disproportionately hard. In its place will come a tax on profits, which could be advantageous to HSBC over the longer-term. The change comes as the UK government has signalled an end to so-called banker bashing, not least by sacking the zealous former head of its lead regulatory agency, Martin Wheatley. Ironically, Wheatley cut his teeth as the boss of Hong Kong’s Securities and Futures Commission.
But there is one — very large — unanswered question about Britain, and that’s the country’s future membership of the European Union. Prime Minister David Cameron has promised a referendum on the issue, and popular support for remaining in the bloc is waning. After months of soul searching, HSBC may well decide that its future lies in the UK. But only if the UK’s future lies in Europe.
