In Depth

HSBC shares rise after £1.5bn buyback pledge

Plan takes total returned to investors in past three years to more than $25bn

HSBC HQ review: will bank move to US?

23 October

The recent review of HSBC's head office has prompted endless speculation that it might abandon London in favour of Hong Kong. But now the bank is eyeing the US as a serious alternative to the Asian finance hub.

"Growing concerns about the political risk of the bank ending up under Chinese control have prompted a rethink" of the option of settling in China-controlled Hong Kong, people familiar with the discussions told the Financial Times.

A rival option of the US is being touted, as it "is one of the few countries with an economy big enough to be able to comfortably welcome a bank of its size". Bankers "also view US financial regulation as more accommodating of large universal banks".

Presentations on the various options, including remaining in the UK, are thought to have been given, but there has not yet been "any discussion of the relative merits".

Changes to the UK bank levy announced at the Summer Budget, which will effectively cut hundreds of millions from HSBC's tax bill, and concessions on new rules relating to banker accountability and the retail bank ringfence, are thought to have swayed the decision back in favour of London.

But one lawyer who recently met executives from the bank told the FT, "they felt the attitude of the Treasury and regulators was still hostile".

Breaking Views notes, however, that HSBC is unlikely to have an easier time in America. "US watchdogs are tough too: deputy attorney general Sally Yates recently made it clear she will target individuals, not just errant institutions". The bank has been targeted before: "in 2012 it received a $1.9bn fine for allowing Mexican money laundering".

When HSBC announced its review in April it did not know who would win the UK general election. Now, given all the political and regulatory uncertainties of moving and "a friendlier political climate" for the next five years under the Tories, the bank ultimately "lacks convincing reasons to leave".

That is why, despite the intense speculation, HSBC is "most likely to stay in the UK".

Will HSBC move European base to Germany if UK quits EU?

20 October

HSBC could abandon London altogether in the event of the UK voting to leave the EU, according to the chairman of the bank's German arm.

Asked during an industry conference whether a 'Brexit' might result in HSBC moving its main head office to Hong Kong and its European base to Dusseldorf, Andreas Schmitz, who is also a senior member of the German Bankers' Association, replied "the latter would more likely be the case", the Times reports.

The comments reveal how a vote to leave the EU could affect the British capital, currently the premier financial services hub in Europe (by a wide margin) and one of the top two financial centres in the world alongside New York. The impact on foreign investment and the cost of doing business in the UK if the country were to vote to leave the bloc were cited by Standard & Poor's in a report in June, Bloomberg notes. The ratings agency speculated that Frankfurt, Paris or Dublin could replace London as the continent's financial capital.    

While HSBC does not expect UK citizens to vote in favour of leaving the EU, Schmitz says that "banks are asking themselves, what happens if?" In such a scenario, HSBC's "European business would more likely move to Dusseldorf than Paris," he says.

HSBC is currently in the midst of a head office review, which some have speculated could see a move to Hong Kong to reflect the bank's growing interest in Asian markets. It has always been assumed the lender would keep its European base in London even if it shifted its headquarters. Its new ringfenced UK retail bank, HSBC UK, will be based in Birmingham.

Despite Schmidt's remarks, there's a strong belief that changes to the rules coming in for bankers in the UK will swing the decision about HSBC's headquarters in London's favour (see below). The bank is thought to have been persuaded by concessions including the removal of a rule assuming guilt in the event of a regulatory breach and rules relating to asset transfers for ringfenced retail banks.    

Meanwhile HSBC has distanced itself from Schmitz's remarks. An official spokesman said the banker "was speaking in his capacity as a senior member of the German Bankers' Association, not on behalf of HSBC" and that "his views do not reflect those of HSBC".

HSBC set to stay in UK after regulatory concessions

19 October

HSBC is apparently set to announce it is keeping its main headquarters in the UK, backing down on threats to quit London after a series on concessions on incoming regulation.

Earlier this summer it was reported that the bank was leaning towards staying in London, following rumours of a move to Hong Kong, after George Osborne announced changes to the bank levy that had the effect of reducing the tax bill of big international institutions. Two further concessions last week on banker accountability and ring-fence rules have apparently tipped the scales more definitively.

The Sunday Times points to the Treasury's decision to scrap a rule that would have forced senior bank executives to prove they had done all they could to prevent breaches of rules, rather than requiring regulators to prove their case as in criminal proceedings.

Another concession involves the ring-fence on retail banking operations. New rules have been confirmed, which will require banks to hold around £3.3bn more capital to shore up their core deposit-holding activities, but the regulations allow for assets to be passed over from investment banking arms. This effectively reduces the capital hit banks were facing under the regulations.

It was widely thought that the announcement it was reviewing its headquarters location was an attempt by HSBC to force the government to back down on some of the more onerous regulatory initiatives. A "high-level source" told the Sunday Times chief executive Stuart Gulliver has secured "pretty much everything he wanted" and that the review would therefore end in a decision to stay put.

HSBC has said that it may delay the final decision until the new year. Under bank ring-fence rules, it is already establishing a new base for its UK retail banking unit, to be known simply as HSBC UK, in Birmingham.

HSBC cuts pay of investment bankers 

15 October

HSBC is pushing ahead with a tough savings programme by cutting the pay of investment bankers.

Hundreds of contractors, mainly based in the bank's London office, have had their pay cut by ten per cent, reports The Times. They are also being made to take a mandatory two-week unpaid holiday, described as "mandated worker furloughs", which takes the total reduction in pay to 14 per cent.

The paper says the policy "has been applied to all contract workers in the global banking and markets division, some of whom have worked full time for years and are on PAYE contracts".

Also affected are "financial analysts and others in core parts of the bank as well as IT workers, some of whom are more used to the ups and downs of contract work".

According to the Financial Times, the move is a "sign that a strategy to slash thousands of jobs and billions of pounds worth of assets in the London-based global banking and markets division is starting to bite".

Announcing a "pivot" to Asia earlier in the year, HSBC pledged to save around $5bn in annual costs and reduce its risk-weighted assets by at least $290bn, or a quarter. In total the changes are likely to result in around 50,000 of the bank's 266,000 global staff being cut, with up to 8,000 going from the UK.

HSBC's shares were up 0.5 per cent to 518.4p in afternoon trading. That increase is less than a one per cent rise on the FTSE-100.

HSBC: big bet on China highlights tilt to Asia

21 September

The scale of HSBC's shift to Asia has been underscored by the announcement that it's adding 4,000 jobs to its Chinese operations at a time of major cutbacks elsewhere.

Peter Wong, the bank's Asia-Pacific chief executive officer, told the Hong Kong Economic Times that HSBC will increase by around 30 per cent the workforce employed in the Pearl River Delta region of southern China, which includes the mega city Shenzen and Hong Kong.

At the same time, it is expected to cut 50,000 jobs from its global headcount and reduce annual costs by up to $5bn. 

"HSBC aims to increase its pre-tax profit in the Pearl River Delta to $1bn within five years from $100m last year," Wong said, according to a translation by Bloomberg. The bank has already shifted its fund management boss to Hong Kong and is considering whether it should move in its global head office from London to Hong Kong, or another site in Asia.

The Daily Telegraph says Wong's comments come after chairman Douglas Flint last week praised the international regulatory set-up in London, in remarks that were interpreted as an indication it would retain its UK head office (see below).

Wherever the bank locates its headquarters, HSBC's management has repeatedly stated the "strategic importance" of China and the wider Asian region, where it feels it can exploit longer-term growth and establish itself as the go-to banking brand. Some analysts say this strategy will pay off for those investors that take a long-term view on a stock that has fallen more than 20 per cent from a high earlier this year.

Writing on The Motley Fool, Peter Stephens points to the bank's price to earnings ratio of 9.4, which is low for the sector, and projected 17 per cent increase in earnings in 2015, as reasons to buy into a back that a recent decline might just have turned into a "bargain".

HSBC shares were up 1.1 per cent on Monday morning to 496p.



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