Advertisement

SKIP ADVERTISEMENT

HSBC to Weigh Moving Headquarters From London

The Paris offices of HSBC. The bank’s headquarters are in London, where taxes are high.Credit...Alex Hofford/European Pressphoto Agency

LONDON — The British bank HSBC said on Friday that it would review whether to move its headquarters from London as it faces a shifting regulatory landscape that includes a bank tax that has hit lenders based in Britain particularly hard.

The formal review comes as some shareholders and analysts have suggested that HSBC and Standard Chartered, which is also based in Britain, would be better off with their headquarters elsewhere, in part because they generate much of their revenue in Asia.

HSBC, which was founded as Hong Kong and Shanghai Banking Corporation in 1865 in Hong Kong, moved its headquarters to Britain in 1993 following its acquisition of Midland Bank. The lender has previously reviewed whether to shift its headquarters in the past, but opted to stay in Britain.

“As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the U.K.,” Douglas Flint, the HSBC chairman, said at the bank’s annual meeting in London on Friday.

“As part of the broader strategic review taking place, the board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment.”

Banks here will be required by 2019 to shield their retail banking operations from the effects of investment banking and other activities in the event of another financial crisis — a process known as ring fencing.

The headquarters review also comes as political leaders in Britain have pointed to taxes on bank revenues as a way to finance government programs in the future. This year’s general election is scheduled for May 7, making the bank taxes a political issue.

George Osborne, the chancellor of the Exchequer, has said that Britain’s bank tax, calculated on bank balance sheets, is here to stay. The tax, known as a bank levy, was put in place in 2010 to help finance the government efforts to rescue the financial system, but it has also generated revenue for other programs.

The Labour Party, the primary opposition party in Britain, and the Liberal Democrats have both said they want to raise the bank tax to fund social programs in Britain.

The government has raised the bank tax nine times since it was introduced, taking in 5.3 billion pounds, or about $8 billion, according to the British Bankers Association.

HSBC’s payment has more than doubled since 2012. The tax cost the bank about $1.1 billion in 2014, when HSBC reported a profit of $13.7 billion. It amounted to $472 million in 2012.

The tax applies to all banks and building societies that operate in Britain. It hits Britain-based banks particularly hard, however, as they are taxed on their global balance sheets. Overseas competitors like Goldman Sachs are taxed only on their British operations.

It is not uncommon for banks on Wall Street and in Europe to suggest that they could move their headquarters to places where regulators and lawmakers are more accommodating. And the bank tax in Britain has led some to question whether banks based in Britain, like HSBC and Standard Chartered, both of which have huge global operations, should stay in London.

“The question is a complex one, and it is too soon to say how long this will take or what the conclusion will be,” Mr. Flint said in the statement. “But the work is underway.”

Responding to a shareholder’s question, Mr. Flint did not provide any further reasoning for why the bank is reviewing the headquarters’ location or indicate whether the bank is leaning in a particular direction.

“I’ve not threatened anything,” he said.

Mr. Flint also pointed to the “very broad range of uncertainties and challenges” on the horizon for the bank, including Britain’s potential exit from the European Union. Britain’s prime minister, David Cameron, has pledged to give Britons a referendum on membership in the 28-nation bloc in 2017 — if he remained prime minister after the general election in May.

Mr. Flint noted that HSBC published a research study in February that concluded that efforts to overhaul the European Union to make it more competitive were “far less risky than going it alone, given the importance of E.U. markets to British trade.”

On Friday, Mr. Flint separately apologized to shareholders for a breakdown in controls at the bank that allowed misconduct by some of its employees.

It was the latest in a series of mea culpas for HSBC’s senior leaders after recent revelations, based on secret documents taken from the bank in 2007, about employees in Switzerland potentially assisting wealthy clients evade taxes.

The board, senior management and the bulk of HSBC employees take these issues “very personally,” and its employees “are incensed at the damage done to the brand by a very small number of individuals who broke our rules and circumvented our controls,” Mr. Flint said.

The bank has acknowledged previous “conduct and compliance failures” in its Swiss business and has said that it has overhauled its private banking business and reduced its client base in Switzerland by 70 percent since its peak.

The Swiss business is facing criminal investigations in France and in Belgium, and its corporate parent was placed under formal criminal investigation in France this month. It also is facing investigations in Argentina and in Switzerland.

Stuart Gulliver, the chief executive of HSBC, also has been forced to defend his use of a shell company in the past to channel his bonus into a Swiss account, which he closed in 2009. He has previously said it was not intended to avoid taxes and was common for employees in Hong Kong, where he worked at the time, to do so to keep their compensation private.

The tax issues were on the minds of several shareholders on Friday, with one shareholder calling for the replacement of Mr. Flint and Mr. Gulliver and several directors after reading a laundry list of investigations the bank is facing.

“It’s a terrible list,” Mr. Flint said. “I can’t change the past, none of us can. We can do a great deal and, are doing a great deal, to future proof” from similar control failures.

A version of this article appears in print on  , Section B, Page 2 of the New York edition with the headline: Under Pressure in Britain, HSBC Weighs a Move. Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT