No safe haven for HSBC if it leaves London

BANKING regulators in Hong Kong would face a huge challenge to scale up their operations if HSBC were to abandon the City in favour of its former home, raising questions as to whether it would be welcomed into a rival jurisdiction with open arms.

With HSBC’s chairman Douglas Flint warning that the UK bank levy is a “location tax” on being head-quartered here, speculation has mounted that it could leave if the Independent Banking Commission tries to break up its operations.

But HSBC’s natural alternative home, Hong Kong, would not necessarily welcome taking responsibility for the banking behemoth.

“It’s a very different beast in Hong Kong,” says Baker & McKenzie’s Tim Gee. “They’re not lead regulator to a bank with anything like the scale and complexity of HSBC.”

The Hong Kong Monetary Authority (HKMA), which currently supervises HSBC’s Hong Kong subsidiary, has a fraction of the banking supervision staff of the FSA, its equivalent regulator in the UK. The HKMA’s most recent annual report shows that it has 167 people in its banking supervision division, versus the FSA’s 988.

The most recent figures available also show that in 2006, the HKMA was responsible for regulating banks with a total of HK$8.3 trillion in assets, less than half the size of HSBC’s HK$19 trillion global balance sheet last year.

And although HSBC?could avoid the UK’s bank levy by moving its headquarters, it might not escape extra capital requirements.

HKMA says it is “keeping an open mind” on the issue of surcharges for systemically important banks.

HKMA added that it does not comment on matters concerning individual banks. HSBC refused to comment.