|The once and future home of HSBC?|
I am of two minds about public persecution of banks nowadays through these record-breaking fines and other measures. Are banks to be punished simply for being banks--especially those with global reach? Arguably, the end result of so many requirements for minimum capitalization, AML-CFT and so forth is that even bigger agglomerations have emerged post-crisis since it's not exactly cheap to meet all these regulations. If they're even bigger and more central to nations' financial systems, it's hard to imagine them becoming easier to let fail.
Feeling the heat of public persecution--even the usually business-friendly Conservative Party in the UK has turned against the banks in line with the public mood--what's HSBC to do? It can stand around for another round of bank-bashing, or it can move elsewhere. Hence its recently mooted plans to leave the UK where it is currently headquartered.
A move to Hong Kong, viewed by analysts as the bank’s most likely destination should it relocate, would unpick a structure that’s existed since the Hongkong and Shanghai Banking Corp. acquired Britain’s Midland Bank Plc in 1992. A transfer should cost no more than $1.5 billion because HSBC still has a base in the former British colony, said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London. “The work is underway,”Markets cheered on the news, apparently being sympathetic to the over-regulation argument:
Chairman Douglas Flint told shareholders at the bank’s annual meeting in London on Friday. “The question is a complex one and it is too soon to say how long this will take or what the conclusion will be.” Flint has been under pressure from investors to consider moving from the U.K., where a levy imposed on banks’ global balance sheets following the financial crisis cost HSBC 750 million pounds ($1.1 billion) last year, more than any other lender. Europe accounts for less than a quarter of profit at the bank, which operates in more than 70 nations.
“They may not like the U.K., but I’m not sure there’s exactly going to be a raft of people queuing up to have them” because of the size of HSBC’s $2.6 trillion balance sheet, said Edward Firth, head of European bank research at Macquarie Group Ltd. in London. “Hong Kong is the only serious possibility.”
HSBC jumped 2.9 percent to 629.7 pence a share in London trading. The stock is up 3.5 percent this year, trailing Standard Chartered Plc’s 11 percent gain and Barclays Plc’s 7.5 percent increase.As you may have surmised, it is not a story solely about HSBC but also the way political classes treat the financial sector and even the future of UK in Europe. With mainstream parties competing to bash banks harder and the Tories still contemplating holding a referendum over the UK being in the EU, now may be the time to return to Asia:
“Investors are excited about the possible move because the U.K. has been tightening their regulations,” said Castor Pang, Core Pacific-Yamaichi’s head of research in Hong Kong. “They are hoping that HSBC could free up more capital when it’s based outside the U.K.” George Osborne, the ruling coalition’s finance minister, increased the levy on bank balance sheets for an eighth time in his most recent budget, and both the Labour and Conservative parties have pledged a more onerous tax regime for banks in their manifestos.While I too believe that Hong Kong is the only place with a financial services sector big and sophisticated enough for HSBC to call home, you have to wonder if the PRC is going to treat HSBC with kid gloves. The Chinese have a very long memory, and the bank was a key financial intermediary for the opium trade which the Chinese remain rather upset about as evidenced by their histories of this period. None of the major news outlets have not really probed how amenable today's China--well, sort of--is to hosting HSBC, but surely it's a consideration the bank will need to think carefully about soon.
HSBC also said it’s concerned about Britain’s potential exit from the European Union. The Conservative party has pledged to hold a referendum on continued membership if it wins. The bank said the importance of EU markets to British trade make it riskier for the U.K. to leave the 28-member economic union than try to overhaul it.
Both Britain’s main political parties seized on the the bank’s announcement: Prime Minister David Cameron said the move underlines the need for pro-business policy. Opposition Labour party leader Ed Miliband said HSBC’s comments were “very significant” and that the last thing Britain needed was two years of debate about whether to leave the EU or not.