If HSBC ever decided to adopt a corporate theme song, it should probably be The Clash’s Should I Stay Or Should I Go. Over the past few months, Europe’s biggest bank has dropped constant hints that it might move its headquarters out of London. Every time it does, serious-looking columns get written about what a terrible blow it would be to the City if HSBC were to abandon this country. Yet the interesting question is rarely asked: does it matter if HSBC moves somewhere else?
HSBC has made few comments in public about the possibility of moving to another country. But over last weekend, the stories in the press saying plans for a move were at an advanced stage looked to be well-sourced. Addressing a parliamentary committee last month, HSBC’s chief executive Douglas Flint said investors are “asking us to explain the cost of being in the UK and the benefits”. That certainly sounded like a clear signal that the issue was very open to debate. In the wake of those stories, HSBC issued a clear denial that any move was imminent. Yet there is rarely smoke without fire. It would be very odd if HSBC hadn’t thought about moving elsewhere. Its constant threats make a very good bargaining tool. Stop being horrid to the banks, it is implying, or else we’ll shove off. Yet for all the controversy, it would actually be better for both parties if HSBC moved elsewhere. Here’s why.
Firstly, it isn’t, and never has been, a particularly British bank. As the Hong Kong and Shanghai bit of its name suggests, HSBC is a colonial institution. It only moved its domicile from Hong Kong to London as part of the deal to buy Midland Bank back in 1992. It has only been a British-based bank for 18 of the 145 years it has been in existence. In 1992 it made sense to move here. Hong Kong was about to be returned from British to Chinese Communist rule. In those days, people still thought there might be something slightly left-wing about the Chinese Communist Party – a suspicion that has long since been banished. Back then, Britain was a business-friendly country with some of the lowest personal and corporate tax rates in the developed world. London looked like a safer place to be than Hong Kong.
That isn’t true anymore. Flint is certainly right to think about shifting the bank to Asia. That is where the bulk of its business now gets done, and where its profits are rising fastest. Last year it made $11.6bn in Asia compared with $4.3bn in Europe. That gap is only going to grow wider and wider over the next few years. Europe, and Britain in particular, is going to be a minor part of its business.
At the same time, London is no longer such a great place to do business. Most of HSBC’s highly paid staff will now be taxed at 50% if they are based in this country. It will have to pay the banking levy the government has imposed. Capital requirements are higher in Europe than they are in most of Asia. The upcoming review of the structure of financial services for the British government may well recommend that retail and investment banking be split apart. That’s a huge threat to HSBC, which is a big player in both businesses. Simply by switching its headquarters somewhere else, HSBC could avoid all that hassle. It would be crazy not to think about it.
For its part, Britain should be quite happy to see it go. True, HSBC pays a significant amount of corporation tax. The bank paid £1.2bn in tax last year. Of course, there is a certain prestige to having HSBC as a British company. It is one of the 20 largest corporations in the world, measured by market value. It is the third-biggest bank in the world. Britain doesn’t have such a glut of global giants that it can afford to lose many.
But it is important not to exaggerate. Foreign companies, which is what HSBC would become, still pay corporation tax. It is estimated that it would pay £500m less if it moved abroad. That is hardly a vast sum. Of course, London would still be its main regional hub. All the bankers at Canary Wharf headquarters would be paying tax at 50%. Its business in Britain would be as important to it as ever. However, we would no longer be responsible for its fate. As the governor of the Bank of England, Mervyn King, has put it, banks are international in life, but national in death. HSBC is a vast operation. It has more than 100 million customers, almost twice the population of Britain. Last year, it had a balance sheet of $2.45trn. That is more than the entire GDP of Britain itself.
What happens if it runs into trouble the way that Royal Bank of Scotland did? In reality, a bank the size of HSBC could literally bankrupt the country. Of course, no one is suggesting that will happen. HSBC is soundly managed. Then again, no one was saying Royal Bank of Scotland would collapse – and yet it had to be saved by the British taxpayer.
An amicable separation would be best for both sides. HSBC would be freed from the British tax and regulatory system, and Britain would be freed from having to rescue the bank if it ran into trouble. Surely that’s a better solution than constantly arguing about whether HSBC stays or goes?