Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Never mind HSBC's (widely predicted) decision to stay headquartered in London. Investors should focus on the other U.K.-based bank that really should be looking to make the move: Standard Chartered.

Emerging Pain
Standard Chartered shares have lost almost half their value in the past 12 months
Source: Bloomberg data

While both banks have managed to wring concessions out of the British government and get a cut in the bank levy that was hurting their sprawling operations, Standard Chartered remains a more obvious candidate for relocation.

It has a banking network focused on Asia (and unlike HSBC, no consumer bank in Britain). It is paying a regulatory price for staying in the U.K., in the form of higher capital requirements and taxes. Its balance sheet is far smaller than HSBC's, making it more practicable for a regulator in Singapore or Hong Kong to oversee. A move would also bring it closer to its biggest shareholder: Singapore's Temasek. If Standard Chartered were invented today, it wouldn't be based in London.

Looking To Asia
Europe accounts for a small portion of Standard Chartered's revenue
Source: Bloomberg

Granted, Standard Chartered's CEO Bill Winters has made it plain relocation is on the back burner. That's because he's fighting a fire in the emerging markets, with the rout in commodities fueling a surge in souring loans. The shares are down 21 percent so far this year, even after the bank raised $5.1 billion in a share sale and pledged to eliminate 15,000 jobs.

Rising Risk
Nonperforming loans at Standard Chartered have been rising

If Winters' turnaround fails, the relocation question may be answered for him: analysts have noted that Standard Chartered could be a takeover target for an Asian competitor. If Winters succeeds, he would be in a far stronger position to consider a move -- any regulator's concerns about the bank's capital would have likely dissipated by that point.

And there are good reasons to move: take the bank levy, for instance. Standard Chartered has no U.K. consumer bank, yet pays more than RBS and Lloyds, two of the country's biggest mortgage lenders. And while the levy is being reduced to only cover banks' domestic assets, the process will take six years -- more than enough time for the current downturn to bite harder.

Bank Levy
Standard Chartered paid more than Lloyds or RBS in 2014 -- despite having no U.K. consumer bank
Source: Company filings, and Sanford C. Bernstein estimates

One obstacle to moving might come from the U.S., where New York's financial watchdog fined the bank $340 million in 2012 over breaches of U.S. sanctions with Iran. The agency labelled Standard Chartered a "rogue institution". With the ability to transact in dollars crucial for any global bank, U.S. authorities may some pressure if Standard Chartered were to propose a move.

HSBC's decision to stay put for now doesn't rule out a move in the longer term. China's growth will continue, and its middle class will be the biggest opportunity for banking in a generation. And London isn't as stable or attractive as Chancellor of the Exchequer George Osborne would like to think, and the risk that Britain leaves the European Union is real.

Once market turmoil eases, banks are likely to feel the pull of Singapore and Hong Kong again. Asia may have lost this battle with HSBC. It might yet win the war.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net