HSBC’s next headache is relocation, relocation, relocation

 
Mark Kleinman
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HSBC needs a long-term decision on where to make its home (Source: Getty)

If Douglas Flint had a tenner for every time he had been asked about the future location of HSBC’s headquarters, he’d have almost enough to pay its contribution to the bank levy by himself.

Flint has many other things on his mind right now: the reputational fallout from the Swiss tax evasion affair, sluggish returns from underperforming businesses, and a tail of legacy fines from international regulators.

Nevertheless, George Osborne’s post-Budget clarification that the bank levy is now regarded in Whitehall as a permanent fixture of the tax system rather than temporary restitution for pre-crisis sins provides a different filter for investors in HSBC and Standard Chartered.

And while media attention has focused on the latter of the two Asia-oriented banks, I’m told that institutional shareholders have been pushing just as hard for HSBC to re-examine the issue. With its bank levy tab hitting $1.1bn in 2014 and likely to be at least 20 per cent higher this year, that equates to a lower proportion of pre-tax earnings than at StanChart. Yet it is a sum of money that is large enough to unnerve investors whose returns have already been eroded by rapidly shifting regulatory goalposts.

The complexity of shifting the domicile of a global bank, allied to continuing uncertainty about the final shape of UK ring-fencing rules, means HSBC is right not to rush a decision.

But neither can the bank afford to ignore it – indeed, insiders indicate that HSBC’s board discusses it regularly.

My bet? It will be Flint’s successor – rather than the current chairman – on whose watch the next long-term decision about HSBC’s home is taken.

QUIS CUSTODIET IPSOS CUSTODES?

Humility? Schadenfreude? Regret? It was a cocktail of these responses which greeted last week’s review of the Bank of England’s payment systems failure in October.

Inadequate contingency planning, press statements that were “open to misinterpretation”, and a panicked response: there’s little doubt that a report reaching similar conclusions about failings in a major commercial bank would have been a catalyst for docked bonuses, rolling heads – or both.

Yet at the Bank of England, there have been no such repercussions – or none that we have been told about.

At least Martin Wheatley, the Financial Conduct Authority chief, forfeited his bonus after the botched insurance industry briefing condemned in a report last week by a parliamentary committee.

The more Draconian alternative – the loss of his job – was seen as a punishment too far by Osborne, who regards Wheatley as having done a good job in repositioning the regulator as a consumer champion.

The obvious conclusion? There remains one set of rules for regulators, and a quite different set for those they regulate.

BANK SPONSORS BEWARE

With figures showing mergers and acquisitions activity at a seven-year high during the first quarter of 2015, it seems pessimistic to forecast significant investment banking layoffs.

Yet bulge-bracket bank employees serving private equity clients are increasingly gloomy about their prospects.

The reasons become apparent when you dig a little further into the data: the upsurge in merger and acquisition, with quantitative easing in the Eurozone doing little to encourage chief executives to abandon their long-held caution.

Just as significantly, strong equity markets have meant that there has been a ready alternative to private equity-led M&A: the certainty of a full exit to another sponsor has been outweighed by the premium achievable through a flotation.

When the next round of job cuts hits investment banks, their financial sponsor groups are likely to be first in the firing line.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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