columbine

Wonder if this move will affect mm2hers?

HSBC mulls selling British banking unit
Jennifer Li and Reuters
Monday, April 27, 2015

HSBC (0005) is considering selling its 20 billion (HK$235.36 billion) worth of British retail bank, The Sunday Times said, soon after a plan to move its headquarters out of Britain was revealed.
Directors of the second-largest company in Britain are considering the future of its retail operations in the country, as a so-called "ring-fencing" scheme may let it lose control over the retail arm, The Sunday Times said in an article yesterday.

It is said that the scheme, brought in after the financial crisis, requires lenders to put retail operations into separate companies with independent boards and chairmen.

The report said that no move was imminent and the ring-fence does not take effect until 2019, but HSBC chief executive Stuart Gulliver will be asked about it when he discloses a strategy update in June.

HSBC declined to comment. Last Friday, HSBC ordered a review into whether it should move its headquarters out of Britain and potentially back to its former home in Hong Kong, due to the stress brought on by taxes and regulations in Britain.

The announcement from HSBC, founded in Asia, but a key part of the British establishment, prompted a warm response from Hong Kong and silence from the British government.

"HSBC is the largest bank in Hong Kong and has deep historical links with Hong Kong. The HKMA takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong," the Hong Kong Monetary Authority said last Friday.

HSBC shares closed 4.24 percent up to HK$73.80, hitting its three-month high after a quick surge on Friday afternoon.

bakedbean

My take on it is I doubt it. Think I read somewhere that they make most of their money in Asia. They are talking about moving back to Hong Kong but it's a big cost to do that.

Well, I guess if they pulled out of UK, it would affect the British MM2Hers with bank accounts there. If the retail banking gets taken over by another bank, MM2Hers would lose the easy transfer facility (HSBC UK to HSBC Malaysia) I guess.

I may be cynical but I think it's a bit of sabre rattling before the upcoming election in the UK. HSBC don't like all the new rules and regulations in the UK and it's costing them. The government (whichever party gets in) will not want to see them leave the UK as it somewhat destroys the idea that London is a big banking hub in Europe/the World.

kingoflostfools

I can't see the bank moving back to Hong Kong, but a move to Singapore might work.

Another option would be to break the headquarters operation into a smaller independent operating unit and simply transfer that, in essence leaving a much smaller UK operation and therefore smaller regulatory and tax footprint.

The smaller headquarters operation could then be moved somewhere that is less of a regulatory burden, such as Luxembourg (to remain in the EU), Switzerland (probably Zurich or even maybe Zug) or again Singapore.

bakedbean

What about KL? Already got a foothold in Malaysia.

kingoflostfools

Not with the Capital Control laws that remain in force here.

JC3

I read an article in the New York Times about this last week. Looks like Standard Chartered is considering move out of London too.

HSBC probably to Hong Kong, and Standard Chartered to Singapore.

JC3

See below, or:
http://www.nytimes.com/2015/04/21/bu...asia.html?_r=0

LONDON — HSBC and Standard Chartered are looking at the viability of quitting London for a new home in Asia because a big increase in a tax on British banks makes staying in Britain increasingly painful.

Several investors said that they wanted the two banks to do a thorough analysis of whether it made sense to move after Britain raised the bank tax by a third last month.

Some investors are expected to quiz the banks’ bosses on the issue at shareholder meetings, including an investor gathering in Hong Kong on Monday.

“There is a very clear risk that HSBC and StanChart reach a pain threshold where they think it is no longer worth staying in the U.K.,” said Richard Buxton, head of equities at Old Mutual Global Investors, which owns HSBC shares.

The tax has increased eight times since being introduced in 2010 to ensure that banks were making a “fair contribution” after the financial crisis. The latest rise was seen as a move to win over voters before the May 7 election in Britain.

Aberdeen Asset Management, the second biggest shareholder in Standard Chartered, with an aggregate stake of 9.4 percent, said the bank should consider the option.

Four years ago, HSBC said it would review its domicile in 2015, although the bank declined to comment when a review might occur.

The banks, which make most of their profits in Asia, face a combined $2 billion bill this year under the annual British bank tax, up from $1.5 billion last year and almost double what they paid in 2013.

The opposition Labour Party plans to increase it by 800 million pounds to £4.5 billion, or $6.7 billion, a year for the banking industry as a whole, if it wins power, to pay for child care for 3- and 4-year-olds. Labour is neck and neck in opinion polls with the Conservative Party of Prime Minister David Cameron.

Another hefty rise could be the final catalyst and force banks to move, said Chirantan Barua, an analyst at Sanford C. Bernstein.

HSBC, which has described the levy as a tax on staying in London, faces a bill of $1.5 billion this year, about 7 percent of expected profits. Standard Chartered is set to pay $500 million, or about 9 percent of earnings.

HSBC says it has two home markets, Britain and Hong Kong. It moved from Hong Kong to London in 1993 when it bought Midland Bank, and its most likely move would be back to its former home, one of the few places that could handle its $2.6 trillion balance sheet.

The bank began life in Hong Kong 150 years ago, with roots in financing trade between Europe and Asia. It issues most of the territory’s bank notes and has made $24 billion in profits there over the past three years, compared with a $4 billion loss in Britain over the same period.

London has been home to Standard Chartered since it was formed in 1969, and its most likely new home would be Singapore, from where most of its businesses are already run.

Analysts said the cost of moving could be between $1.5 billion and $2.5 billion per bank.

HSBC told British lawmakers in February, before the tax increase, that the best location was still Britain. It postponed a review in 2011 because its chief executive, Stuart Gulliver, said there were too many moving parts to make a rational decision.

Industry sources said that could still be the case for both banks. They are trying to improve profitability, cut costs, sell businesses, deal with old misconduct issues and simplify. Standard Chartered also gets a new chief executive this year, Bill Winters, who may want to raise capital.

“On a 10- or 15-year view, I’d be surprised if both of them are still here,” said John-Paul Crutchley, a UBS banking analyst. “But I don’t think it’s an issue for the short-term. They have bigger priorities.”

Yet it could be worth it. An analyst at JPMorgan, Raul Sinha, estimated that the higher tax on British banks would cut Standard Chartered’s earnings 13 percent in 2017, while a move away from Britain could lift its return on tangible equity, a key profitability measure, by 1.6 percentage points to 12.7 percent.

Britain is also forcing banks to separate domestic retail operations by 2019, so if HSBC were serious about moving, it could spin off its British business at the same time, analysts said.

But the complexity of all the issues in the mix makes a decision difficult. These include Europe’s pay rules, the risk of losing staff, how capital and leverage rules in places like Singapore compare, access to capital, political stability, credit ratings and the risk of regulatory change in any new jurisdiction.

Britain’s strongest card is London, which ranks alongside New York as the most attractive global financial hub, in the Z/Yen Global Financial Centers Index.

Banks, accused of saber-rattling with threats to move before, are also wary of stepping into a political minefield.

“StanChart and HSBC might well be firing warning shots on their possible relocation to tell politicians they won’t be bullied,” said Paul Mumford, senior investment manager at Cavendish Asset Management, which owns stock in both banks. “But I think unless these firms start feeling that some politicians are in tune with what they offer the U.K., then we might see genuine action.”

Steve Slater and Sinead Cruise are Reuters correspondents.

kingoflostfools

So the costs of moving would be between 1 and 1.5 years worth of the UK Bank Levy. Sorry, but those look like good numbers especially since they have to split off the domestic banking operations anyway to be in compliance with new laws.

The whole point about such taxes is that if other destinations don't have them all you do is irritate the targets of such taxation until they go somewhere else.

As with the super rich, they tend to be very mobile with other jurisdictions prepared to make various concessions (often behind closed doors) to get them to move to their base. This will include things like reduced tax rates or even zero tax for a period.

Sounds like Banks whose primary customers are not in the UK have reached their "Laffer Curve" limit with respect to the Bank Levy.

InVinoVeritas

Yes, it's an interesting story and of course the politics extends beyond the UK as the EC has had HSBC in its sights for quite a while now (Falciani, Libor and exchange rigging etc).

One would expect any company to organise its affairs to maximise shareholder return and banks have a deal more flexibility (and influence) to achieve this. Asia is a big market for HSBC but there is also huge growth potential in its Islamic banking operation although this is regarded by many in the Arab world as being far too Westernised.

It could be in both Malaysia and HSBC's mutual interest to develop a regional hub if not a headquarters in KL. As KoLF says capital controls would have to go but they probably need to go anyway if Malaysia wants to attract foreign investment.

Interesting times.

kingoflostfools

Nope - because when it comes down to it, the big problem is liquidity and security. Malaysia's economy is too small, too rigid and subject to political interference.

Much better to go somewhere where these problems aren't a factor.

InVinoVeritas

Is Hong Kong not part of China and do they not politically interfere in the economy?

columbine

HK has maintained its own regulations and free market strategies as before. Now with the HK Shanghai Stock Connection and soon the HK Shenzhen Connection, has already opened up a massive influx of cash to HK.

As reported, "In 2014, HSBC paid US$1.1 billion (HK$8.58 billion).
Unlike foreign banks with major British operations - such as Goldman Sachs - which are taxed only on their British balance sheets, HSBC is levied on its global operations because its domicile is in Britain.

Standard Chartered, another major British bank, has come under similar pressure to move its domicile because of the tax.

In undertaking a review, HSBC is giving out two messages: assuring worried shareholders and, more importantly, telling the British government not to increase the tax on the banking sector or the public treasury may suffer.

The ball is now in the politicians' court."

ex reg

The banks in UK have behaved abominally over more than 20 years.

Even now there are regular adverse news items about banks.
Even last week after the HSBC news something came out about how banks had screwed customers again.
Can't remember what it was now so don't ask.

Blackmailing a Government about 'increase in taxes and we're off' is typical of how banks think they are untouchable.
I don't see how they could move out of UK in less than 10 years minimum and would like to see them try.
I hope any government whatever its hew will call their bluff.
BTW I haven't had a problem with banks myself.
And good post columbine. Informative.

Davita

Columbine's post has it right.
I've been a client and shareholder in HSBC since 1974 and a Midland Bank client, now HSBC, since the late 50s.
One of the HSBC Directors has a villa here in Bali. His wife is a friend of my wife and we all had dinner a few weeks ago.
He confided to me their plan to send a message to shareholders and UK government about this unfair tax on the banks offshore profits because of its London base. Other banks, based elsewhere, but having business in UK, only pay tax on profit generated in UK.
HSBC moved from Kong Kong to London in early 90's and this tax was introduced in 2010, and been progressively increased numerous times.

He also said that HSBC is getting out of Syriah banking except in Malaysia.

I'm guessing, at present, it's only a threat, but shareholders will have the last say.

kingoflostfools

Hmmm - Lets see.

Taxation = "Yes" and Representation = "No"

I seem to remember that caused problems in the past.

Ultimately, HSBC doesn't depend on the UK for the vast majority of its earnings and segregating its domestic from international business is something that it is already having to do because of other legislation.

I would estimate that it would take about 2-years to complete the segregation and re-domicile. Indeed the move itself would be the least of the problems, it would be ensuring it ends up improving the situation long term.