HSBC too risky for Hong Kong

HONG Kong gave a stern warning that it might not welcome HSBC if it tries to move its headquarters from the UK after one of its leading regulators told City A.M. that the city state would be worried about the bank’s size.

Speaking in one of his first UK interviews since being appointed to lead a body that will replace the FSA, Martin Wheatley, who is currently chief executive of the Hong Kong Securities and Futures Commission, told City A.M.: “You’re right to ask if Hong Kong would want it. The question is, do you want to have something that big on your doorstep? For a place with a relatively small GDP compared to the size of HSBC, you have to ask if you want to have that risk in your system.”

HSBC is currently conducting a review of its domicile, with speculation that it could leave London after its chairman Douglas Flint criticised the UK’s bank levy as a “location tax”.

But it could find it difficult to move back to its former home in Hong Kong given Wheatley’s assessment.

The lead regulator of a bank is usually responsible for bailing out a failed lender. With HSBC boasting a HK$19 trillion (£1.49 trillion) balance sheet, the task could overwhelm Hong Kong.

Wheatley also poured cold water on the idea that Hong Kong would ever adopt lax regulations to tempt HSBC back: “There’s been a lot of talk about certain UK banks re-domiciling. At the moment, it’s all talk... It’s not in anyone’s interests to create lower standards and regulatory arbitrage. The spotlight would immediately be on the regulator that does that. I don’t see it.”

And even if HSBC did move, Wheatley says that it wouldn’t gain anything from looser capital requirements: “You’d want to make sure you’re applying the same rules as a bank would face anywhere else.”

Wheatley will return to the UK permanently in September to lead the Financial Conduct Authority, one of the two bodies to replace the FSA when it is abolished next year.

HSBC’s review of its domicile will not report until the end of 2011, although CEO Stuart Gulliver will today present the details of a highly anticipated strategic overhaul.

In theory, HSBC could re-domicile anywhere, but given its history in Hong Kong and its Asian presence, a move elsewhere is thought unlikely. The bank declined to comment.