HSBC To Launch Immediate Review Of UK Base

HSBC has launched a review of the location of its headquarters that could see it quit the UK, Europe's biggest bank‎ confirmed on Friday.

In a statement issued after Sky News exclusively revealed details of its plans, Douglas Flint, HSBC’s chairman, said executives had been asked by the lender’s board to undertake a review of its UK base.

"As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK,” Mr Flint is expected to say at HSBC’s annual general meeting in London later on Friday.

"As part of the broader strategic review taking place, the board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment.

"The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is underway."

The bank's share price rose more than 2.5% on the FTSE 100 when the news emerged.

Sources said that directors of HSBC Holdings (Xetra: HBC2.DE - news) had agreed at a board meeting on Thursday to undertake the domicile review, which is likely to take around six months.

The news will drop a bombshell into the heart of the General Election campaign and is certain to spark a political row about whether banking reforms are undermining the competitiveness of a crucial sector of the UK economy.

A committee of executives, led by chief executive Stuart Gulliver, will report to HSBC Holdings' board on the headquarters review, sources added.

HSBC is a substantial payer of corporation tax in the UK, but its board has become increasingly concerned that bank-specific taxes and the future shape of regulation are making it uneconomic to remain based here.

The bank, which has been under pressure from regulators and politicians over the Swiss tax evasion scandal which re-emerged in February, will face significant obstacles if it does decide to move its headquarters to Hong Kong.

Some shareholders are concerned about the influence of Beijing if it does relocate, while others are anxious that any decision to move is not seen to be driven by a reaction to the crisis at its Swiss private bank .

HSBC has been headquartered in the UK since 1992, when it acquired the Midland Bank.

It now employs more than 47,000 people in the UK, 1000 of whom are to move to Birmingham as part of a recently announced relocation of its UK bank head office.

Prior to the banking crisis, HSBC undertook a review of its domicile every three years, but has not done so in recent times because of the shifting regulatory landscape.

Under UK Government reforms, universal banks such as HSBC and Barclays (LSE: BARC.L - news) will have to erect a firewall between their high street and investment banking operations by 2019 in order to insulate taxpayers and customers in the event of a future financial crisis.

George Osborne, the Chancellor, recently said that the Bank Levy, introduced in 2010, was now regarded as a permanent fixture of the tax system, while Labour has pledged to raise an additional £800m-a-year from the Levy to fund its childcare plans.

HSBC executives are also concerned that the ring-fencing structure will diminish its ability to exert influence over its UK bank, according to insiders.