It was in 1993 when Sir Willie Purvis repatriated HSBC’S head office from HK to London. HSBC had selected another gear as a leading international operator, acquiring Midland Bank, Chemical Bank and Republic Bank of New York, not forgetting Household, which eventually cost HSBC $53 billion post from sub-prime lending, with a view to expanding their global corporate and investment banking activities. It became clear that after ‘Bing Bang’ London was the place to be to make that quantum leap forward in the world of capital markets and debt structuring. HSBC’S presence in London as leading player was long overdue!
It was a shrewd move, until the banking and credit crisis in 2008. HSBC, in all fairness, was the first to flag the sub-prime lending crisis and despite losing gargantuan sums at Household, the bank a had a pretty decent crisis.
In the advent of Lord Stephen Green and Michael Geageghan handing over to Douglas Flint and Stuart Gulliver in 2010, HSBC has experienced a litany of problems – money laundering in US, LIBOR and FX manipulation and tax issues at its Swiss banking arm – all very controversial and mostly very costly in terms of fines. HSBC has been vilified for not being in control of 300,000 personnel in their branches all over the world. CEO Stuart Gulliver was also castigated – grossly unfairly – for his personal tax affairs, when he has behaved in an exemplary manner since coming to the UK in 2009.
When the contents of the Vickers Independent Committee for banking recommended that banks should be split in to two – corporate/retail and investment banking, Gulliver served notice that HSBC may have to consider contingency plans in terms of its domicile. Since then so much more ammunition has been supplied as to why HSBC should serve notice on a feasibility study as to if and where head office should be relocated to. No one should be remotely surprised. In answer to a lack of management control, and to comply with George Osborne’s wishes, HSBC will relocate its retail banking to Birmingham, creating 1000 new jobs. It also made everyone aware last week that HSBC intended to become simpler and smaller by pulling out of some emerging countries, flagging up Brazil and Turkey to start with. However with draconian EU regulation and the cost of capital increasing disproportionately coupled with an increase in the bank levy, Gulliver, Flint & Co are obliged to consider shareholder value and no one can blame them for giving due consideration to domicile. Last year HSBC paid £740 million in bank levy – easily the largest of all UK banks. This is disproportionate since HSBC makes 80% of its profits internationally. How the EU can have the same regulation criteria for banking in the UK as the rest of the EU the ‘Good Lord’ only knows – chalk from cheese. All European financial centres are Mickey Mouse in comparison to London. This is in no way any criticism of Andrew Bailey of the Prudential Banking Authority.
I hope and think HSBC is bluffing but who knows? This threat is a warning shot across the bows to Miliband to stop banker bashing and show support for an industry that contributes 15% towards GDP. To David Cameron & George Osborne, it tells them to fight harder on the renegotiation of EU terms particularly on financial regulation.
To those to the left of centre politically, don’t say good riddance! Don’t throw the baby out of the bath water. If HSBC is not placated and decides to leave, it will send out a terrible message to the international business community that London may not be the place to finance international trade, raise bonds and provide loans as it was in yesteryear. It could trigger the likes of Goldman Sachs, UBS, Deutsche Bank, Morgan Stanley to reserve judgement. HSBC employs 48k people in the UK. HSBC’S departure would be an unmitigated disaster for a country that is just getting its economic and trading act together!