24th Apr 2015 13:48
LONDON (Alliance News) - HSBC Holdings PLC is undertaking a review of the best place for its global headquarters, Chairman Douglas Flint said at the banking group's annual meeting of shareholders on Friday, a decision prompted by increasing concerns about the strictness of the regulatory regime and the status of the UK's membership of the European Union.
Although currently headquartered and publicly traded in London, HSBC shares are also listed in New York, Paris and Bermuda, as well as Hong Kong, which would be a possible destination should the group review conclude that a change of domicile is required. Hong Kong was the historic home of HSBC, which was founded in 1865 to facilitate trade between between Europe, India and China, but the group became headquartered in London with the acquisition of Midland Bank in 1992 after a failed attempt to buy the Royal Bank of Scotland.
According to the Financial Times, the Hong Kong Monetary Authority said: "The HKMA takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong."
Shareholders, who were voting following disappointing annual results for 2014, a year in which pretax profit fell to USD18.68 billion from USD22.57 billion in 2013, passed all of the group's proposed resolutions. There was a small protest at the directors' remuneration report, which gathered the support of 76.3% of votes cast, standing out as the lowest approval rating of any of the proposals on the table.
HSBC's review into where it is headquartered is a sign that management takes seriously the increasing concern among analysts and investors that the group is being weighed down by the burden of the UK's levy on banks' balance sheets. HSBC paid USD1.1 billion towards the bank levy in 2014 and has said that 58% of the levy does not relate to its UK banking activity.
The UK bank levy was introduced in 2011 by the coalition government, which wanted to discourage risky borrowing in the wake of the financial crisis. The levy is imposed on parts of the bank's balance sheet, including on debt and some equity. Since it was imposed, the government has raised the levy several times, most recently at the annual Budget statement in March when it was raised to 0.21%. Analysts have said HSBC was hit hardest.
"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. The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is underway," Flint told shareholders at the meeting.
The launch of the review comes at a crucial time for politicians in its current country of domicile, as there are only two weeks remaining in the run-up to the UK's General Election. Both the Conservative Party and the Labour Party have promised that the levy on banks will continue to be imposed.
The UK's political parties are at odds over the country's future in the EU, with the Conservative Party planning to hold a membership referendum that's opposed by Labour. The UK Independence Party, which is currently third in the polls, wants an even quicker referendum than the Conservatives. Flint said the uncertainty about EU membership could have a telling impact on the economy and investors.
"One economic uncertainty stands out, that of continuing UK membership of the EU," Flint said. "In February we published a major research study which concluded that working to complete the Single Market in services and reforming the EU to make it more competitive were far less risky than going it alone, given the importance of EU markets to British trade."
The UK's banks are also preparing for rules that will require them to ring-fence their high street operations from investment banking businesses by 2019, as part of regulatory efforts to reduce risk in the event of a future financial crisis. HSBC has previously requested more time to implement the restructuring, although it has already said it will base its own ring-fenced UK retail banking operations in Birmingham.
Flint, who alongside Chief Executive Stuart Gulliver was questioned by UK lawmakers earlier this year over revelations about the extent to which the group's Swiss private banking unit facilitated aggressive tax avoidance and evasion, told shareholders that he is committed to restoring the group's reputation and standing to "where they should be".
The allegations over misconduct in HSBC's Swiss private bank did nothing for the banking group's reputation, which also took a hit after fines amounting to USD611 million over the foreign exchange manipulation scandal in 2014 and set aside a further USD550 million in connection with other regulatory investigations into the matter. Those matters merely added to USD1.92 billion in anti-money laundering penalties imposed on HSBC by US authorities in December 2012.
"HSBC has paid a heavy price. Our reputation has been damaged and the financial burden of the unacceptable behaviour has been borne by you, our shareholders in fines, penalties, additional costs and the opportunity costs arising from diversion of management time - this is clearly wrong," Flint said.
HSBC Deputy Chairman Simon Robertson said the board has "absolutely full confidence" in both Flint and Gulliver as well as the rest of the management team. Flint said a "further refresh" of the bank's board in terms of non-executive directors was likely this year.
Flint also defended HSBC's size, which has become a target of critics who think the group has become too big to manage. The group, which has more than 6,100 offices in 73 countries and territories across the world, had USD2.634 trillion in assets on its balance sheet at the end of 2014, but Flint told shareholders that the age of making transformational acquisitions is now over, given the likelihood of "public policy resistance".
"In a world which has moved from being interconnected to being interdependent, our business model is increasingly relevant to companies of all sizes and to individuals whose financial future is linked to economic activity in multiple countries. Very few banks today have our capabilities to connect the entrepreneurial ambitions of our corporate customers to a global network that facilitates the international collaboration needed for competitive success," Flint said.
HSBC shares were up 3.0% at 630.30 pence on Friday afternoon.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
HSBC Holdings