London — HSBC and Standard Chartered are looking at the viability of quitting London for a new home in Asia because a big jump in a tax on UK banks makes staying in Britain increasingly painful.
Several investors told Reuters they want the two banks to do a thorough analysis on whether it makes
sense to move after Britain raised the bank tax by a third last month.
Some are expected to quiz bosses on it at shareholder meetings, including at an investor gathering in Hong Kong today.
“There is a very clear risk that HSBC and StanChart reach a pain threshold where they think it is no longer worth staying in the UK,” said Richard Buxton, head of equities at Old Mutual Global Investors, which owns HSBC shares and who said the bank was reflecting on a move.
The tax has increased eight times since being introduced in 2010 to ensure banks make a “fair contribution” after the financial crisis. The latest rise was seen as a popular move ahead of Britain’s May 7 election.
Aberdeen Asset Management, the second-biggest shareholder in Standard Chartered, with an aggregate 9.4 per cent stake, said the bank should consider the option.
Senior management are already assessing the situation, people familiar with the matter said. Four years ago, HSBC said it would review its domicile in 2015, although the bank declined to comment if or when any review might occur.
“It’s a live conversation internally because it’s an issue being raised by investors and sell-side analysts,” said a person close to one of the banks, who asked not to be named as the discussions are private.
The banks, who make most of their profits in Asia, face a combined $2 billion bill this year under the annual UK bank tax, up from $1.5 billion last year and almost double what they paid in 2013.
The opposition Labour Party plans to increase it by £800 million to £4.5 billion ($6.8 billion) a year for the banking industry as a whole, if it wins power, to pay for childcare for three- and four-year-olds. Labour is neck-and-neck with Prime Minister David Cameron’s Conservatives in polls. Another hefty rise could be the final catalyst and force banks to move, Bernstein analyst Chirantan Barua said.
HSBC, which has described the levy as a tax on staying in London, faces a bill of $1.5 billion this year, about seven per cent of expected profits. Standard Chartered is set to pay $500 million, or about nine per cent of earnings.
‘Too many moving parts’
HSBC says it has two “home” markets, Britain and Hong Kong. It moved from Hong Kong to London in 1993 when it bought Midland Bank and its most likely move would be back to its former home, one of the few places that could handle its $2.6 trillion balance sheet.
The bank began life in Hong Kong 150 years ago, with roots as a financier of trade between Europe and Asia. It issues most of the territory’s bank notes and has made $24 billion in profits there over the last three years, compared to a $4 billion loss in Britain over the same period.
London has been home to Standard Chartered since it was formed in 1969 and its most likely new home would be Singapore, from where most of its businesses are already run.
Analysts said the cost of moving could be between $1.5 billion and $2.5 billion per bank.
HSBC told UK lawmakers in February, before the levy increase, the best location was still Britain. It had postponed a review in 2011 because chief executive Stuart Gulliver said there were too many moving parts to make a rational decision.
Industry sources said that could still be the case for both banks. They are trying to improve profitability, cut costs, sell businesses, deal with old misconduct issues and simplify. Standard Chartered also gets a new CEO next month, Bill Winters, who may want to raise capital.
“On a 10- or 15-year view, I’d be surprised if both of them are still here. But I don’t think it’s an issue for the short-term, they have bigger priorities,” John-Paul Crutchley, UBS banking analyst, said.
Yet it could be worth it. JPMorgan analyst Raul Sinha estimated the higher UK bank levy will cut Standard Chartered’s earnings by 13 per cent in 2017, while a move away from Britain could lift its return on tangible equity, a key profitability measure, by 1.6 percentage points to 12.7 per cent.
Britain is also forcing banks to separate domestic retail operations by 2019, so if HSBC is serious about moving, it could spin off its UK business at the same time, analysts said. — Reuters
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