U.K. Should Say Good Riddance to HSBC
There’s a saying used to call the bluff of someone who threatens to flounce out of the room during an argument: “Don’t let the door hit your backside on the way out.” That sums up how the U.K. should react to HSBC’s threat to move its headquarters to a different country.
Europe’s biggest bank is sulking because the British authorities have increased the levy on financial institutions domiciled in the nation. Standard Chartered, another bank that currently makes its home in London but most of its money in Asia, is also contemplating upping for new pastures.
There’s nothing wrong with companies reviewing their affairs, including which country they choose to hang their brass plaque in. But threatening to leave in a fit of pique every time there’s a threat of increased regulation or a nudge in taxation smacks of teenagers threatening to run away from home because a curfew is too early or performing household chores are too tedious. And HSBC in particular is becoming a bore by regularly trying to blackmail the U.K. authorities.
It may make sense for HSBC -- which started life a century and a half ago as the Hong Kong and Shanghai Banking Corp. -- to move. It's been based in London as a result of its purchase of Midland Bank a bit more than two decades ago. But it made more than 78 percent of its 2014 profit in Asia, compared with just 3.2 percent from its European operations; the figures for 2013 were 70.3 percent and 8.1 percent, respectively.
HSBC seems to hold the mistaken belief it’s doing the U.K. a favor by hanging its hat in London. The levy has been increased eight times since it was introduced in the middle of 2010, which feels excessive -- until you remember that HSBC’s Household Finance unit played a leading role in the U.S. subprime mortgage debacle that triggered the global financial crisis; that U.K. banks have paid billions of pounds in fines for malfeasance in everything from rigging Libor to mis-selling insurance to their retail clients to arranging dodgy swaps for their corporate customers; and that the easiest way to reduce your levy payment to the U.K. government is to shrink your balance sheet.
So the 750 million pounds ($1.1 billion) that HSBC paid to the banking levy fund last year can be regarded as not-particularly-excessive compensation for its role in the appalling behavior of the financial sector in recent years. It’s also a small price to pay for enjoying the advantages and support of the legal and accountancy framework that accompanies doing business in Europe’s leading financial center.
The argument that HSBC is motivated in part by the risk that the U.K. might quit the European Union, cited today by Liberal Democrat Chief Secretary to the Treasury Danny Alexander, is a red herring. The U.K. election is two weeks away, with the Conservative Party pledging a referendum on EU membership if it retains power, and polls showing neither it nor the opposition Labour Party with any clear lead. It’s unlikely in any case that HSBC would ever shift to Paris or Frankfurt; and even staying in a London base that's outside the EU would allow the bank deeper financial ties with Europe than headquartering in Singapore, Beijing or, more likely Hong Kong.
Hong Kong, in fact, would welcome HSBC with open arms. The Hong Kong Monetary Authority said today it would have a “positive attitude” toward a relocation. So let’s wave HSBC on its way and wish it well. Goodbye -- and good riddance.
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