Why HSBC should relocate its Head Office outside the UK

the question is usually posed as will HSBC move its headquarters from London
the question should be why wouldn’t they?
it is continuing a process of reducing its global
(with the businesses in Brazil  and Turkey likely to be the next two to go),
HSBC is still a global business. The UK business, particularly the retail bank)
is a decreasingly significant contributor to group profits. The logic of the UK
being the largest part of HSBC an

Biggest contributor
to UK Bank Levy

is the largest contributor to the UK Bank tax having paid more than a third of the £2.2bn raised since the levy was introduced. It paid $1.1bn (£750m last year
and will pay $1.5bn (£1bn) this year. This is despite having smaller UK operations than the other
big 4 banks (RBS, Lloyds, Barclays). This tax has risen seven times since it
was first introduced. At that time it was said to be a one-off reparation
payment for the role that the banks played in the 2008 financial crisis. However
with the unpopularity of the banks (largely driven by the politicians in collusion
with the media) the banks have been seen as a soft touch for raising further
tax revenues by both Labour and Conservative governments.

The Conservatives winning an overall majority in the General Election has not made the argument for remaining head
quartered in the UK stronger. It was after all the ‘business friendly’ Conservatives who
have just raised the Bank tax once again in the last budget. There is nothing to suggest that they won’t raise it further when they need more money to either invest or pay off the deficit.

argument that has been made for why it makes sense for HSBC to locate its Head
Office in London is because the UK time zone is ideal for both working with
Asia (in the UK morning) and the US (in the UK afternoon and evening). However
with HSBC shrinking its retail operations in the US, after the disaster that
was Household, the need to be in the UK only becomes a necessity for the
investment bank. Having the investment bank based in London does not mean that
the Head Office has to be.
further argument for moving the Head Office out of the UK is ring fencing. Ring
fencing is a way to structurally separate retail banking activities from wholesale
and investment banking activities. It is due to be implemented by 2019 and is a
UK regulation which differs from both the way that the US and the European
Union intend to de-risk structurally significant banks. HSBC intends to only
put its UK retail bank within the ring fence and the rest of its business
outside. It is estimated that ring-fencing will cost banks in the region of
£1.5bn – £2.5bn to put in place and then a further £1.7bn – £4.4bn per year to
operate. This will be yet another significant rise in the cost of doing banking
business in the UK. Since the element inside the ring fence for HSBC will be
exclusively UK activities and relatively small, it would make sense, reduce
costs and be less disruptive to at the same time as setting up the ring fence
move the Head Office out of the UK. Not only would it reduce the overall set up
costs (of separation and relocation), but it would also reduce the running costs
of operating the ring fenced business.
Welcome back Midland Bank?

course once the UK retail bank is separated from the rest of HSBC by means of
the ring fence it will not only make it far easier but more obvious for HSBC to
sell off the UK retail bank given the inevitable decline in profitability in
the UK business brought about by the changes to banking that the UK government
(of whatever party or party combination) already plan to and will plan to
introduce. HSBC have already announced that its retail bank head office will move to Birmingham in the heart of the Midlands. A cynic might think that the combination of the separated bank and the move to the Midlands will be steps towards the reversal of the 1992 acquisition by Hong Kong-based HSBC of Midland Bank. Good bye HSBC, hello Midland Bank?

Footnote: Should Labour get into government and
abolish non-dom status relocating the Head Office back to Hong Kong would
resolve that particular problem for HSBC CEO Stuart Sullivan (but of course
there are a lot of far cheaper ways to do that!)

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