HSBC and Standard Chartered not leaving London reckon brokers

LONDON (ShareCast) - Reports that HSBC was examining a potential flotation or sale of its UK high street bank led to its shares, and those of Standard Chartered (Other OTC: SCBFF - news) , rising strongly on Monday. Analysts argued that the move looked to be politically motivated and was unlikely to happen in the short-term.

Credit Suisse (NYSE: CS - news) said an IPO could boost the shares in the near-term but would not put much of a dent in reducing the banks' risk profile, while also giving up a significant source of earnings.

The Swiss bank, which calculated the retail banking arm made 10% of group adjusted of pre-tax profit in 2014, noted that similar reports had emerged about an HSBC retail IPO in December 2013, interestingly with the same £20bn valuation quoted.

"A UK listing could benefit the capital position if this were to be sold at a higher book value multiple than the group, but it would also sell a proportion of higher returns to minority shareholders." With UK ring fencing a reality the banks cannot escape, Credit Suisse estimated the non-retail UK balance sheet was significantly larger than UK retail at more than 70% of UK assets.

"If HSBC were to exit, then the remainder would be largely non-ring fenced, and could have significantly higher costs of funding." UBS (NYSEArca: FBGX - news) analysts largely dismissed the likelihood of the dual-listed pair of banks moving their headquarters as pre-election "noise".

"While there has been considerable recent media attention around the issue of redomicile following confirmation from both HSBC and Standard Chartered that both are considering the possibility of such a move, our view is that while this may happen in the long-term, neither is likely to undertake it in the short term," the bank said.

"We attribute the rationale for statements in this regard as being more a reminder to UK politicians ahead of the UK election than a message of serious intent." Garry White at Charles Stanley (LSE: CAY.L - news) made the point that HSBC's $2.6trn balance sheet is almost 10 times Hong Kong's economic output, which would make it very difficult for Hong Kong to provide any support during another banking crisis.

He noted speculation that the Hong Kong regulator would have to increase its requirement for holding capital to reduce the risk to its banking system.

"Announcing a move to Hong Kong would be a major change for the group, one that will carry a lot of risk. That's why it hasn't happened before and why many in the City are taking the threat as a sign of the bank's underlying unhappiness, rather than a real or likely threat.

"However, it could happen should the Hong Kong regulator be prepared to seriously up its game."