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 The decision by HSBC's board, which Europe's biggest bank said was
unanimous, gives a boost to London's status as a global financial
center, under threat since the financial crisis of 2007-09 from
tougher regulation and rising costs.
Yet Chief Executive Stuart Gulliver immediately warned that the bank
could not stick with the status quo were Britain to vote in favor of
leaving the European Union in a promised referendum, saying it would
consider moving around 1,000 employees from London to Paris.
Some investors had encouraged HSBC to consider moving its HQ from
Britain, partly because of a tax on banks' global balance sheets
brought in after the financial crisis which had cost it $1.1 billion
in 2014.
But following extensive lobbying by the banking industry, British
finance minister George Osborne said in July he would halve the levy
and, crucially for HSBC, no longer apply it to the overseas assets
of British banks, part of efforts to help to keep Britain an
attractive place for banks.
The bank denied using the threat of moving to force the British
government to rein in the tax.
"We had no negotiation with the government," HSBC Chairman Douglas
Flint told BBC radio on Monday. "The government was very well aware
of our view ... but there certainly was no pressure put on, or no
negotiation".
The waiver on applying the levy to HSBC's overseas assets will only
come fully into effect in 2021 at the earliest, leaving the bank
exposed to shifting political winds in Britain in the interim, said
Investec analyst Ian Gordon in a research note, who nonetheless kept
a "buy" rating on its shares.
Asked if the government had caved in to threats by the banks, a
spokeswoman for Prime Minister David Cameron said Osborne's budget
last year had set out that the levy was introduced to raise revenue
and stabilize bank balance sheets. "It served its purpose, it worked
but it risks doing harm if left unchanged, he (Osborne) said that
clearly last summer.”
A Reuters analysis showed that moving to Hong Kong might have
actually increased the bank's tax burden.
LESS AGGRESSIVE
"Arguably, a more benign approach in the UK to the regulation of
banks, and a less aggressive tone by politicians, also played an
important part in the decision," said Guy de Blonay, a fund manager
at Jupiter Asset Management which holds shares in HSBC.
"The bank can now turn its attention to succession planning, likely
to revolve around its Chairman Douglas Flint initially (2017), and
then CEO Stuart Gulliver (2018)".
The decision to stay in London comes after a tumultuous period for
European banks, whose shares have tumbled on fears of a global
economic slowdown and the impact on earnings from a prolonged period
of low or negative interest rates.
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HSBC shares are down more than 30 percent from last April when the
group began its headquarters review, hit by China's flagging
economic growth and market turmoil.
For Hong Kong, the chance of luring back HSBC, short for Hongkong
and Shanghai Banking Corp, to its birthplace and to the heart of its
Asian growth strategy has been lost for now.
"London is one of the world's leading international financial
centers and home to a large pool of highly skilled, international
talent," HSBC said in a statement. "It remains therefore ideally
positioned to be the home base for a global financial institution
such as HSBC."
Analysts estimated the cost of moving out of London at between $1.5
billion and $2.5 billion, a hefty bill to swallow unless HSBC was
able to achieve clear tax and regulatory advantages.
Hong Kong, where HSBC was founded about 150 years ago and where it
employs more than 20,000, was considered the strongest relocation
option as it accounts for 46 percent of HSBC's pretax profit.
But gyrations in Chinese markets coupled with concerns about China's
growing influence over Hong Kong had helped make it more likely the
bank would stick to London.
HSBC said it remained committed to its Asia "Pivot" strategy, under
which it plans to invest more into China's Pearl River Delta north
of Hong Kong which already accounts for half of HSBC's China
revenue.
The Hong Kong Monetary Authority, which had earlier said it would
welcome an HSBC move to Hong Kong, said it respected the board's
decision to maintain the status quo.
(Additional reporting by Denny Thomas in Hong Kong and Kate Holton,
Simon Jessop, Kylie MacLellan and Lawrence White in London; Editing
by Lincoln Feast and David Holmes)
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