Why would HSBC want to quit the UK - and will other banks follow suit? (2024)

Under-fire banking giant HSBC today created a pre-election storm when it announced that it would consider moving its headquarters out of the UK because of regulation issues.

Chairman Douglas Flint told the group's annual general meeting that it was responding to ‘regulatory and structural reforms’ in the industry in the wake of the financial crisis.

These include, in the UK, an expected need to separate investment banking arms from retail divisions serving ordinary customers and businesses.

The bank has also been hit by a UK bank levy, which last year cost it $1.1billion (£730 million), up $200million (£130 million) from 2013, and which was hiked again in last month’s Budget.

HSBC's decision to launch a review into the future of its headquarters, was well received by its shares today, which gained more than 3 per cent, or 19.1p to 631.3p in afternoon trading.

Rival Asian-focused lender Standard Chartered also benefited, adding 13.5p to 1,075.5p on hopes that it might follow suit.

However, analysts don’t expect the rest of the banking sector to follow their lead, with the others much more UK-focused than the pair, especially Royal Bank of Scotland and Lloyds Banking Group in which the British taxpayer still holds stakes following bailouts for both during the financial crisis.

HSBC's announcement sparked a claim that the ‘regulatory pendulum has swung too far’ while Labour seized on remarks by Mr Flint on the uncertainty facing the bank over Britain's future in the European Union.

Chancellor George Osborne said ‘anti-business’ policies from Labour threatened to drive companies abroad.

Mr Osborne said: ‘We have to have properly regulated banks. But if we proceed in this country with an anti-business set of policies we are going to drive companies abroad, we are going to see jobs lost.’

The bank’s chairman disclosed the review at the company's AGM today in London, where the board faced a bumpy ride from shareholders over the potential move as well as on a series of scandals that have dogged the bank.

One investor, Michael Mason-Mahon, said: ‘Which country are you likely to go to? How many countries have you not committed illegal and criminal behaviour in?’

Mr Flint said it was ‘essential that we position HSBC in the best way to support the markets and customer bases critical to our future success’.

He added: ‘We are beginning to see the final shape of regulation and of structural reform, including the requirement to ringfence in the UK.

‘As part of the broader strategic review taking place, the board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment.

‘The question is a complex one and it is too soon to say how long this will take or what the conclusion will be, but the work is under way.’

Mike Trippitt, financials analyst at Numis Securities called the review ‘a step in the right direction.’

He added: ‘There's a lot of uncertainty and operating costs to establishing a ringfence.’

Mr Flint also cited a series of uncertainties - including one that ‘stands out’, which is Britain's future in the EU. His remarks come at a time when the Conservatives are pledging an in-out referendum.

He said the bank's own research indicated that working towards reforms in Europe would be ‘far less risky than going it alone, given the importance of EU markets to British trade’.

Labour’s shadow business secretary Chuka Umunna said: ‘HSBC's statement today serves to illustrate how irresponsible it is to play fast and loose with the UK's membership of the EU.’

The review of where the bank has its headquarters comes as it has been under intense pressure over its Swiss private banking arm over claims that it helped thousands of account holders hide billions of their assets from tax authorities.

The scandal resulted in Mr Flint and chief executive Stuart Gulliver being ferociously grilled by MPs and apologising for ‘unacceptable’ activities. It is under criminal investigation in a number of countries. Mr Flint acknowledged today that ‘the recent past has been very difficult for HSBC’.

The bank has also been caught up in scandals including money laundering and foreign exchange rate-fixing, amid public anger over the behaviour of the wider sector.

HSBC, which originated in Hong Kong, has been based in the UK since 1992 when it took over the UK's Midland Bank and shifted its headquarters to London. The global group employs 266,000 people, including 48,000 in London.

Last month it said it was to relocate the head office of its UK retail bank to Birmingham by 2019, in a move that will see 1,000 jobs transferred from London, as part of the ‘ringfencing’ to separate different parts of the business.

There was some scepticism over the idea that HSBC might leave the UK, with one shareholder at today's AGM saying the bank had threatened to do so before, though Mr Flint said: ‘I haven't threatened anything.’

The chairman declined when asked to give a commitment that it would stay in the UK for three more years, saying there was still ‘work and analysis’ to be done.

Meanwhile, deputy chairman Sir Simon Robertson said the board had ‘absolutely full confidence’ in Mr Flint and Mr Gulliver amid calls for them to go in the wake of the succession of scandals the bank has faced.

He also backed the re-election of board member Rona Fairhead - who is also chair of the BBC Trust - after she was severely criticised by MP Margaret Hodge, chairman of the Public Accounts Committee, at a hearing in the wake of the Swiss scandal.

She will serve one last year on the board before stepping down, as Sir Simon said her ‘responsibilities as the chair of the BBC Trust will increase’.

HSBC also survived a revolt over Mr Gulliver's £7.6million pay package, with 24 per cent of shareholders voting against the bank’s remuneration report.