April 24, 2015 / 8:15 AM / 2 years ago

HSBC looks at moving HQ from Britain as tax and regulations bite

A branch of HSBC bank is seen near Westminster Abbey, in central London March 6, 2011.Stefan Wermuth

LONDON (Reuters) - HSBC, Europe's biggest bank, has ordered a review into whether it should move its headquarters out of Britain and potentially back to its former home in Hong Kong, threatening London's reputation as a global hub for finance and investment.

The announcement from HSBC, founded in Asia but a key part of the British establishment, prompted a warm response from Hong Kong, where it is revered as "The Bank", and silence from the British government.

The commitment to the review comes less than two weeks before British parliamentary elections on May 7 and poses challenges for both Prime Minister David Cameron and his main challenger, Labour party leader Ed Miliband.

HSBC has been one of the most vocal critics of the regulations and additional taxes imposed on British banks in the wake of the 2007-2009 financial crisis and Chairman Douglas Flint singled out the threat of Britain withdrawing from the European Union in a speech to investors on Friday.

Cameron has pledged to hold a referendum on Britain's EU membership if his Conservative party is re-elected.

The opposition Labour party seized on HSBC's announcement.

“HSBC is just the latest in a long line of companies warning of the dangers of a re-elected Tory (Conservative) government taking Britain out of the European Union," said Labour finance spokesman Ed Balls.

A Conservative spokesman declined comment on HSBC.

Hugh Young, global head of equities at Aberdeen Asset Management, one of HSBC's top 10 investors, said even with its already large presence in Hong Kong, moving would be a big decision.

"No one should be under any illusion that it’s as simple as moving a brass plate from one city to another. It is far more complex than that and involves local, regional and global regulatory frameworks, costs and the future strategic shape of HSBC," Young said.

BANK LEVY

Labour's plans to raise taxes on banks if it comes to power may also influence HSBC. The bank is already expected to pay $1.5 billion under a UK bank levy this year, or about 7 percent of expected profits because it is taxed on its global balance sheet. That charge is up from $1.1 billion last year.

Flint denied playing politics, adding the board only decided to launch the review on Thursday after shareholders increasingly urged it to consider its domicile. "How other people interpret it is up to them," he told reporters after the shareholders' meeting.

Taxes, tougher regulation and rocketing house prices, all raising costs for banks and their staff, have already encouraged some banks to move operations out of London.

Some shareholders want HSBC to consider returning to Hong Kong to cut costs and Friday's announcement prompted a 3 percent rise in its stock.

"This is more than just sabre-rattling, they clearly want the establishment to know that HSBC doesn’t necessarily belong here," said one investor.

HSBC last reviewed its domicile in 2010 and had said it would re-assess its position in 2015. Flint said this would be a deeper analysis of regulations and structure than past reviews, including external advice. Analysts put the cost of moving at between $1.5 billion and $2.5 billion.

Reuters reported on Sunday that executives at HSBC and rival Standard Chartered were looking at quitting London for Asia.

A shift in HSBC's headquarters would not have a major impact on Britain's tax revenues if it kept most of its staff in the country, but a move could trigger others to follow, potentially weakening London's status as a center for finance.

Standard Chartered said it was listening to shareholders on whether it should consider moving.

KEY FACTOR

Founded 150 years ago as the Hongkong and Shanghai Banking Corporation, HSBC issues most of the territory's bank notes and has made $24 billion in profits there over the last three years, compared with a $4 billion loss in Britain over the same period.

It moved from Hong Kong to London in 1993 when it bought Midland Bank and Hong Kong would be one of the few places that could handle its $2.6 trillion balance sheet.

A UK law forcing banks to separate their domestic retail operations by 2019 is likely to be a key factor in any decision. If the bank does move, it could choose to spin off its UK arm, investors have said.

The Hong Kong Monetary Authority said it would take a "positive attitude" if HSBC decided to return.

Despite its Asian roots, HSBC, nicknamed Honkers & Shankers, has always been a very British bank. For much of its history it operated a colonial-style system of management with international officers, usually white British men, who "went east" and worked up through the ranks.

But HSBC's top brass were recently at the center of a public storm after revelations its Swiss unit helped thousands of rich clients dodge tax.

The bank's senior independent director said on Friday the board was united behind Flint and CEO Stuart Gulliver, but nearly a quarter of investors voted against the bank's pay plans for top staff, including a 7.6 million pound ($11.5 million) package for Gulliver.

(This story adds comments from Flint, updates shares;refiled to add byline)

Additional reporting by Huw Jones and Kylie MacLellan in London, with Lawrence White in Hong Kong; Writing by Carmel Crimmins; Editing by Mark Potter and David Holmes

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