LONDON (Reuters) - Asia-focused banks Standard Chartered (STAN.L) and HSBC (HSBA.L) could be tempted to abandon their London headquarters to avoid a jump in the UK bank tax set to cost them a combined $2 billion a year, investors and analysts said.
Investors in both banks, but particularly Standard Chartered, have in the past encouraged their boards to consider leaving Britain, and this week’s jump in the UK bank levy is building pressure.
“I think it is a live issue for both names and that’s the first time I’ve ever been of that opinion,” said one HSBC shareholder, who also owns some Standard Chartered stock.
“It’s always been talked about but there is a confluence of events for these stocks that now make it a realistic prospect.”
Britain this week said it will increase its annual bank levy by more than a quarter to 3.7 billion pounds ($5.5 billion) a year. About 70 percent comes from the big UK banks, and more than one-third could come from the two Asia-focused banks.
One of Standard Chartered’s 10 largest investors told Reuters it would make sense for the bank to look again at the issue.
Standard Chartered faces paying about $500 million under the tax this year, or about 9 percent of expected profits. The tax cost it $366 million last year, up from $235 million in 2013.
HSBC could pay $1.5 billion under the levy this year, or about 7 percent of expected profits. It paid $1.1 billion last year, up from $904 million in 2013, and said 58 percent related to activity outside Britain.
“It’s getting to a material point now with the levy. It’s a big cost every year and it’s only going north. If investors really start agitating for it you have to take note of it,” one person familiar with the matter said.
HSBC and Standard Chartered executives have said in recent years they have looked at their domicile, and London had remained their preferred location.
Gary Greenwood, analyst at Shore Capital, said Standard Chartered would be more likely to move than HSBC, and its incoming CEO Bill Winters will need to look at the issue.
“It moves the dial a little more in the direction of reasons to not be here rather than being here,” Greenwood said, referring to the hike in the levy.
“It sounds like shareholders are putting more pressure on management to do that. So you probably need to go through the (cost/benefit) exercise again and say these are the pros and cons,” he added.
Moving would be a big and costly upheaval for operations and senior management, however, at a time when they grapple with a number of other problems and try to improve profitability and cut costs. London may also remain attractive due to its regulatory and legal regime, support industries and time zone.
One top 10 shareholder in HSBC said leaving London could enable the bank to ramp up staff pay, which would not be in shareholders’ interests.
($1 = 0.6711 pounds)
Reporting by Steve Slater and Sinead Cruise; Editing by Elaine Hardcastle