HSBC Holdings PLCÂ (HSBC, Financial) last week gave a hint of some sorts to shift its headquarters from London, where it is currently based to an unknown place. The bank may also sell off the UK retail bank. Ever since, shares have been rising steadily. Shares increased almost 4.5% on Monday. Shares also witnessed a 6% increase after HSBC indirectly gave hints that it was considering the option of moving elsewhere.
Location change
It has not been made clear where the new headquarters might be located, though Hong Kong is the most likely option. The bank's top-management had conducted an "informal" meeting with shareholders in Hong Kong to discuss the issue. Investors in Hong Kong are "much more welcoming" they are quoted to have been saying. The Hong Kong Monetary Authority have given a go-head signal for the bank. Though London is definitely a good place for providing financial services, the company begs to differ. The time zone, the legal system and the stable capital markets are plus points for having the headquarters there. One possible location for the new headquarters could be New York. However, due to recent drug cartel operation issues in Mexico, N.Y. is not a likely option. If HSBC sets its headquarters in Hong Kong, the possibilities of political risks under the umbrella of China are terrifying. Douglas Flint, the chairman of HSBC told investors that “board has now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment.''
Retail business spin-off
Along with plans of shifting the headquarters, it is also reported that the bank is going to spin off the $20 billion British retail operations. According to rules that might surface later in 2019, all the banks in the UK will have to divide retail operations from investment banks.A source even went on to say that if one cannot have control over the retail sector, then why have shares in it,. Yes, surely! We do agree with the opinion. Antonio Simoes, the in-charge of the retail bank in the UK, had dismissed such news around 18 months back. He gave an explanation stating that the the bank wished to benefit from UK's recovery. Mr. Douglas also said that it is important that HSBC be positioned in such a manner so as to provide support to the market and customer bases. He also said that the structural & regulatory reforms that have been implemented post crisis, have to be taken into consideration.
However, there are mixed reactions on the news. Carla Antunes-Silva, a financial analyst at Credit Suisse (CS, Financial) said that if HSBC leaves the UK, then the balanced sheet of non-UK will most likely be non-ring fenced. This, in turn would lead to high funding costs. She also added that most portion of the bank's earnings would be gone if the UK retail would be spun off.
Past hiccups
The bank has faced many issues due to the payment of fines along with misconduct allegations. If the bank leaves UK, it will have a negative effect as HSBC is a taxpayer and an employer of around 50,000 staff. There has also been an increase in the bank levy and a shift in the regulation of Britishers lenders. Investors were obviously troubled about this bank levy, and raised concern about it as around $1.1 billion has been spent on it in 2014. The levy reduces the profit from the UK by a very considerable amount, it has been pointed out. Mr. Douglas apologized to the investors for the troubles faced in the past. He said that all financial burden has been borne by the investors, through the form of additional costs, fines and penalties.
