HSBC Faces Threat Of FTSE Exit Over HQ Review

HSBC is wrestling with the potential loss of its membership of London's blue-chip share index if it moves its headquarters back to Hong Kong after a 23-year absence.

Sky News has learnt that the bank, which announced in April that it was launching a formal review of its domicile, has been discussing with its advisers the implications of an enforced ejection from the FTSE-100.

The issue is understood to have arisen because under FTSE Group rules, companies which are listed on an overseas stock market in the same country as they are domiciled are not eligible for inclusion in its equity indices.

That constraint poses a headache for HSBC, since its most likely destination – Hong Kong – is also home to a stock exchange on which its shares are traded.

In the US, the bank's American Depositary Receipts are listed on the New York Stock Exchange, although it is viewed by the City as a less likely place to relocate its headquarters.

HSBC is also quoted in Paris and Bermuda, and has long-coveted a listing in Shanghai when Chinese authorities open the country's exchanges to foreign companies.

The loss of HSBC's FTSE-100 membership would be problematic because of the inevitable consequences for its shareholder base, a significant chunk of which is held by funds which automatically track London's share index.

Sources said that HSBC, which frequently holds the status of being London's largest quoted company by market value, had been assessing the implications of such a change with advisers including Goldman Sachs (NYSE: GS-PB - news) , its joint corporate broker.

It was unclear on Monday whether HSBC had identified a way to resolve the issue, which is one of many complex challenges facing the bank as it continues to review its headquarters.

HSBC, which is due to report its half-year results next week, said three months ago that it would undertake the project amid growing concern among the bank’s directors and investors about the impact of tax and regulatory changes on its operations.

The requirement for major lenders to establish ring-fenced subsidiaries by 2019 has caused particular consternation on HSBC's board, which believes that the resultant separation of governance over the new entity will weaken its ability to make decisions about dividends and other capital-spending.

George Osborne announced in his Budget this month that the Bank Levy, which has hit HSBC punitively since it was introduced four years ago, would be restructured from 2021.

While HSBC's bill from the Levy will reduce over time, the impact on its overall tax burden remains unclear because of a new Corporation Tax surcharge that the Chancellor has also decided to implement.

HSBC insiders say that the Bank Levy restructuring would not by itself represent "a tipping point" in persuading it to remain headquartered in the UK.

In a presentation to investors last month, Stuart Gulliver, chief executive, said the domicile review would be completed by the end of the year, and outlined criteria including taxation and the ability to attract talent among those that will shape the bank’s decision-making.

Mr Gulliver has made significant strides in restructuring HSBC since taking over in 2011, but has been frustrated by its lacklustre share price performance amid the low interest rate environment and

He has sold scores of businesses and taken on thousands more compliance staff as regulatory oversight of the industry has intensified.

HSBC continues to face penalties from US authorities for attempting to manipulate foreign exchange markets, while regulators also continue to probe the Swiss tax evasion scandal which re-emerged earlier this year.

The bank declined to comment on Monday.