HSBC's partly political broadcast

Big businesses avoid party politics these days. But that does not stop them being political in the wider sense of the word. For example, HSBC has suggested it may spin off its UK retail bank if rules on ringfencing the unit reduce the banking group to a "passive equity holder".

HSBC dropped that pebble into the water before Thursday's general election rather than after it. This avoids any deemed ripple of disdain for the winning party, if one is chosen. But as with HSBC's suggestion last month that it could switch domicile from London to Hong Kong, the threat leaves any political victor with a problem.

No mainstream party aspires to preside over the almost complete withdrawal of the UK's largest banking group from the UK. Whatever governing chimera is spawned by Thursday's vote would have a dilemma: whether to relax ringfencing rules currently expected to impose independent boards on UK subsidiary banks; or to ignore HSBC's threats and hope chief executive Stuart Gulliver is bluffing.

There is a good case for HSBC to relocate back to Hong Kong, where it was founded in 1865. The bank was only dragged to London in 1992 by regulators in return for permission to buy Midland Bank, the UK subsidiary that may now be spun off for some £20bn.

Hong Kong would be a better vantage point from which to run a business which makes more than 80 per cent of its profits in Asia. Moving would likely reduce HSBC's tax costs, including the penal levy that falls most heavily on UK-domiciled banking groups. Executives such as Mr Gulliver would be less exposed to MP-led witch hunts, though more at risk from interventions from China's one-party state.

There are straightforward strategic arguments for spinning off HSBC's UK retail bank, particularly if capital buffers required by regulators are high. Mr Gulliver is on shakier ground in arguing that the imposition of an independent board could justify the same response. HSBC would retain great influence as brand owner and 100 per cent shareholder.

The government - whoever that turns out to be - should nevertheless make an effort to scratch the itchy feet of HSBC and counterpart Standard Chartered. A balance needs to be struck between protecting taxpayers from bank collapses and supporting a financial industry that is one of the UK's few sources of competitive advantage. The withdrawal of HSBC from the UK would confirm that the scales had tilted too far towards regulation.

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