UPDATE: HSBC says to consider whether to move headquarters from Britain
(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.
(Updates with further details and background)
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 Downing Street.
News of the review comes less than two weeks before UK parliamentary elections on May 7 and poses challenges for both Prime Minister David Cameron, who is seeking to return to power, and his Labour party rival, Ed Miliband.
HSBC has been one of the most vocal critics of the new regulations and additional taxes imposed on British banks in the wake of the 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 membership of the EU if his Conservative party is re-elected and 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 to comment on HSBC’s announcement, but said Britain’s future membership of the EU was a decision for the British people.
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.
Taxes, tougher regulation and rocketing house prices have already encouraged some banks to move operations out of London, even before the threat of a possible exit from the EU.
Some HSBC shareholders have been urging the bank to consider returning to Hong Kong to cut costs and Friday’s announcement prompted a 3 percent rise in its stock, helping to lift Britain’s top share index back towards its record high.
“This is more than just sabre-rattling, they clearly want the establishment to know that HSBC doesn’t necessarily belong here,” said one investor in the bank.
HSBC last reviewed its domicile in 2010, and had said it would re-assess its position in 2015. 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. Investors told Reuters they wanted the banks to do a thorough analysis.
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 centre for finance.
Standard Chartered said on Friday it was “listening very carefully” to shareholders on whether it should consider moving headquarters out of Britain.
Founded 150 years ago as the Hong Kong 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.
The Hong Kong Monetary Authority said it would take a “positive attitude” if HSBC decided to return.
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 domicile 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,” he said.
Despite its Asian roots and profit base, HSBC 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” to Asia and worked up the ranks.
But HSBC’s top brass have been at the centre of public storm recently amid revelations its Swiss unit helped thousands of rich clients to dodge tax.
The bank’s independent director said the board was united behind Flint and Chief Executive Stuart Gulliver on Friday 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.
($1 = 0.6612 pounds)