HSBC threatens to move headquarters from UK

HSBC threatens to move headquarters out of UK HSBC threw down the gauntlet to the British government on Friday as Britain's biggest bank threatened to move its headquarters from the UK, citing the tougher regulation imposed on the City since the financial crisis.

Previous moves by HSBC to review its domicile have gone nowhere. But the banking regulator in Hong Kong, where HSBC started its life and which is seen as its most likely alternative home, immediately welcomed the decision to launch a review, lending credibility to HSBC's threat.

The Hong Kong Monetary Authority said in a statement that HSBC was the largest bank in Hong Kong and had deep historical links to the territory. It would take "a positive attitude should HSBC consider relocating its headquarters back to Hong Kong," it said.

The bank's share price jumped more than 3.4 per cent after the announcement.

HSBC's move, less than two weeks before the UK's general election, comes with the bank under pressure on all fronts. Politicians and regulators have attacked it over the way its Swiss arm helped clients dodge tax, while investors have complained about falling profits and an underperforming share price.

It suffered a further blow in March when the UK government raised the rate of the industry-wide levy it imposes on British banks.

Douglas Flint, HSBC's chairman, told the bank's annual meeting on Friday that the decision to order a review into HSBC's headquarters was a response to the regulatory reforms launched in the UK since the financial crisis.

"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," he said.

"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."

This is also not the first time the bank has raised the prospect of moving from Britain: it did so in 2006, too, citing the country's tax regime.

HSBC is not the only UK bank reconsidering its domicile. Standard Chartered is expected to carry out a review after the election.

Mr Flint did not indicate where HSBC might move if it did leave the UK. But the bank has a dominant, historic and profitable franchise in Hong Kong. It originally had its headquarters there, but moved it to London after buying Midland Bank in 1993, four years before Hong Kong's return to China.

Shareholders welcomed the announcement, saying the bank levy and regulatory reforms had undermined the rationale for staying in the UK.

One top 10 investor in HSBC said: "HSBC is a huge and complicated bank, which is going to struggle unless global trade volumes increase. It means keeping costs down is imperative. The bank levy and regulations over ringfencing [ . . .] means Britain is a costly place to be headquartered."

All the main UK political parties have committed to maintaining or raising the bank levy to help pay down the budget deficit or fund giveaways such as childcare.

The 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, while foreign banks with large UK operations such as Goldman Sachs and JPMorgan Chase are taxed only on their British balance sheets.

As well as facing increasing regulatory pressure, HSBC has come under fierce criticism over its Swiss private bank. Both Mr Flint and Stuart Gulliver, chief executive, were questioned by MPs over its activities recently, with Mr Gulliver also facing scrutiny over his personal tax affairs.

In response to a question from one shareholder at Friday's annual meeting about whether heads should roll over the misconduct issues facing the bank, Sir Simon Robertson, deputy chairman, said Mr Flint and Mr Gulliver had the board's full support.

"I thought this might come up, so I want to make it clear," said Sir Simon. "We have no plans to change any of them."

Mr Flint did say that Rona Fairhead, an HSBC non-executive director and chair of the BBC Trust and former chief executive of the FT Group, would step down from the bank's board next year.

The bank's shareholders registered a significant protest vote over pay as more than 23 per cent of them cast their votes against its remuneration report. Some shareholders criticised the pay arrangements of Mr Gulliver, whose pay fell slightly to £7.6m last year to reflect the impact of fines for misconduct and a drop in profits.

Sir Simon said the bonus pool had been cut by $600m to reflect recent fines, such as one last year for manipulating foreign exchange markets.

Mr Gulliver confirmed an earlier report in the Financial Times that he would present a new strategic plan to shareholders on June 9.

The chief executive, who is expected to announce plans to retreat from some key retail banking market including Brazil and Turkey, said: "The cost of operating a global business model has increased significantly."

Mr Flint also warned that the prospect of the UK leaving the EU is the most significant economic uncertainty for HSBC. The Conservatives have promised a referendum on Britain's EU membership if it wins the election.

Additional reporting by John Aglionby, Elizabeth Paton, and Naomi Rovnick

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