Banking giant HSBC says may move HQ from UK to Hong Kong

HSBC, the world’s third largest banking group by market value, who denied reports that it is planning to move its headquarter from London to Hong Kong last March, said it is now seriously considering the plan.

LONDON (Bloomberg) – HSBC Holdings Plc, Britains biggest bank, again hinted it may quit the UK for Hong Kong after claiming tighter regulation in Britain that could cost it additional $2.5 billion a year.
HSBC headquarter in London - about to be moved?

The UK-based bank announced a 36 per cent fall in its third quarter profits, largely dragged down by the Eurozone debt crisis and a rise of $1billion bad debts in the US. Profits were $3billion, a drop of $1.6billion or over 34 percent on the corresponding quarter last year.

“The growth in the bank’s operations in Asia is now insufficient to fill the hole left by run-off of the household mortgage disaster in the U.S., and the exposure to Eurozone crisis,” said Ian Gordon, analyst at Evolution Securities. “The challenge of improving HSBC cost efficiency is tortuous,” he added.

HSBC said on top of the 5,000 jobs already under the axe in its U.S., U.K., France, Latin America and Middle East branches, around 25,000 further roles will be cut between now and 2013, CEO Stuart Gulliver told reporters. He said the bank is still hiring in some countries, though, especially in Asia. HSBC employs nearly 300,000 people across 7,500 offices in 87 countries & territories, and generates more than 50 percent of its revenues from Asia.
From left: Bank of China (HK) headquarter, Cheung Kong headquarter - the company operated by Hong Kong richest man and richest person of Chinese descent Li Ka Shing, HSBC (HK) headquarter, Standard Chartered Bank (HK) headquarter

HSBC and Standard Chartered Plc, the two UK-based banks dependent on Asia for a majority of their profit, faced calls from investors to consider moving after the UK government imposed a bank levy last year on that banks retail units should have a loss- absorbing capacity of at least 17 percent to 20 percent.

If implemented as they stand, HSBC may need to sell about $55 billion of loss-absorbing debt which we do not need at an annual cost of about $2.1 billion, Finance Director Iain Mackay said on a call with journalists today. Added to that, the lender estimates that the British bank levy will cost about $400 million a year for its overseas operations. That totaled up $2.5 billion a year.

We would view that cost as being too high, Mackay said. As more facts become available to us then we will clearly act in the best interests of our shareholders and the board of directors will make decisions recognizing those fiduciary responsibilities.
HSBC and Standard Chartered global presences

CEO Stuart Gulliver warned that the impending requirements on UK-based banks to hold increased funds could force it to relocate its headquarters to Hong Kong, particularly as now it is looking to increase its Asian operations. “You get to pay a $2.5 billion cost just for being UK headquartered. This is a non-trivial decision, it is too expensive for us, and you don’t move your head office on a regular basis without a strong reason.”

HSBC has so far said it will sell or retreat from 14 countries. They include the sale of its U.S. credit card business and branches in New York state, retail businesses in Russia, Poland and Chile, and its Canadian brokerage business. It is exiting Georgia.

HSBC is a massive player in Asia. As more growth and profits come from emerging markets, so does the temptation to be headquartered in the East grows. The danger for the UK is not only that it could lose a very handy tax stream, it is also that HSBC may be the thin end of the wedge. If it goes, then Standard Chartered could follow and the power of London as a financial center could evaporate.
Future is brighter in Hong Kong than London?

Standard Chartered said it is currently in no plan to relocate its headquarter to either Singapore or Hong Kong. The government of Singapore is the largest shareholder of the bank, owning a 20% stake.

Facing losses elsewhere, HSBC is increasingly turning its focus towards Asia. The banking giant expects India, Singapore and Malaysia/Indonesia to each deliver over $1 billion in profit before tax this year, while estimated a $1.6 billion profits for its Hong Kong operation. Profits in China almost doubled to $2 billion.

Hong Kong embraced the news, with its government Chief Executive Donald Tsang saying that Hong Kong would absolutely welcome HSBC and Standard Chartered if they decided to move their headquarters to the former British territory. Hong Kong is currently the world’s fourth largest financial centers after New York, London and Tokyo, and would have its position as a global financial hub strengthened should the two global banks shifted head offices there.

Singapore ranked the fifth in global financial centers, followed by Shanghai, Paris, Frankfurt, Sydney and Amsterdam, rounding up the top 10. The ranking, known as International Financial Centers Development Index (IFCD) is compiled jointly by China-based CFC Holding Company, a subsidiary of Xinhua News Agency, and US-based CME Group Index Services LLC (the operator of Dow Jones Indexes)

The index is a ranking of the competitiveness of financial centers around the world on the basis of a comprehensive valuation system combining objective indicators and surveys.

Should HSBC moved its headquarter, the world’s top four biggest banks would all be China and Hong Kong’s.

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