HSBC Exit From UK HQ Adds Up For Investors

It is understandable that HSBC is being lobbied by its shareholders to look into relocating from the UK.

Being based here presents two significant issues for the bank.

The first is the banking levy, introduced in 2010 and increased nine times since, with further rises in the pipeline.

This is a levy on the liabilities on a bank’s balance sheet but HSBC’s global banking rivals, such as JP Morgan, Citigroup (NYSE: C - news) and Deutsche Bank (Xetra: 514000 - news) , only pay it on their UK balance sheet.

British-based banks, by contrast, have to pay it on their global balance sheets and that has left HSBC paying more than anyone else.

Last year, for example, it contributed £750m of the total £2.2bn raised by the bank levy.

With the impost predicted to have raised nearly £20bn by the end of the next parliament, you can see why HSBC shareholders are unhappy about this.

The second grouse concerns the obligation being placed on British banks to separate their UK retail operations into entities that are ring-fenced from investment banking operations.

HSBC, 48,000 of whose 276,000 employees globally are based in the UK, has responded to this with plans to open a new UK head office in Birmingham.

Some may consider this a ‘gold-plated’ response to the new rules. Others have praised the bank for showing a commitment to Britain’s regions. Either way, it is an extra expense of £2bn that the bank is having to pay directly as a response of it being a British-based and regulated bank in a post-crisis environment.

In other words, seen through the eyes of shareholders, HSBC is having to pay dearly for being a British-based bank and, worse, being punished for the misdemeanours of others.

HSBC, like Barclays (LSE: BARC.L - news) , did not take a penny of taxpayers money during the financial crisis and, while it did have some difficulties in sub-prime lending in the United States in the build-up to the downturn, it is not exactly crammed with reckless bankers in the way some of its competitors have been.

This is a bank that has always prided itself on a prudent approach and shunned high-rolling activities in favour of the more mundane practice of taking in deposits and lending money.

Douglas Flint, the chairman, has complained bitterly at the sheer expense of dealing with the new regulatory environment that has emerged post-crisis and it clearly rankles with him that most of the people HSBC has recruited in the last year are not people who will contribute to the bank’s profits but people working in compliance and legal - a cost centre rather than a profit centre.

Relocating from the UK will not be easy and especially not for a bank the size of HSBC.

However, when most of the profitable new opportunities for this grand old bank are in China rather than Europe or the United States, it is easy to see why it might be tempted to leave London and remind people what the ‘H’ and ‘S’ stand for in its name of the Hong Kong & Shanghai Banking Corporation.