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LONDON (Alliance News) - HSBC Holdings PLC is undertaking a review of the best place for its global headquarters, Chairman Douglas Flint will confirm at the banking group's annual meeting of shareholders on Friday, a move that follows previous criticism of the UK's increasing levy on banks from HSBC executives.
The UK bank levy was introduced in 2011 by the coalition government, which wanted to discourage risky borrowing in the wake of the financial crisis. The levy is imposed on parts of the bank's balance sheet, including on debt and some equity. Since it was imposed, the government has raised the levy several times, most recently at the annual Budget statement last March when it was raised to 0.21%. Analysts at that said HSBC was likely to be hit hardest.
"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," Flint is set to tell shareholders at the meeting.
Flint's confirmation of the review is a sign that management takes seriously the increasing concern among analysts and investors that the group is being weighed down by the burden of the UK's levy on banks' balance sheets.
The launch of the review comes at a crucial time for politicians in its current country of domicile, as there are only two weeks remaining in the run-up to the UK's General Election. Both the Conservative Party and the Labour Party have promised that the levy on banks will continue to be imposed.
UK lenders are also required to ring-fence their high street operations from investment banking businesses by 2019, as part of regulatory efforts to reduce risk in the event of a future financial crisis. HSBC has previously requested more time to implement the restructuring, although it has already said it will base its own ring-fenced UK retail banking operations in Birmingham.
Flint, who alongside Chief Executive Stuart Gulliver was questioned by UK lawmakers earlier this year over revelations about the extent to which the group's Swiss private banking unit facilitated aggressive tax avoidance and evasion, will tell shareholders that he is committed to restoring the group's reputation and standing to "where they should be".
The allegations over misconduct in HSBC's Swiss private bank did nothing for the banking group's reputation, which also took a hit after fines amounting to USD611 million over the foreign exchange manipulation scandal in 2014 and set aside a further USD550 million in connection with other regulatory investigations into the matter. Those matters merely added to USD1.92 billion in anti-money laundering penalties imposed on HSBC by US authorities in December 2012.
"HSBC has paid a heavy price. Our reputation has been damaged and the financial burden of the unacceptable behaviour has been borne by you, our shareholders in fines, penalties, additional costs and the opportunity costs arising from diversion of management time - this is clearly wrong," Flint will tell shareholders.
Flint's speech to shareholders also contains a defence of HSBC's size, which has become a target of critics who think the group has become too big to manage. The group, which has more than 6,100 offices in 73 countries and territories across the world, had USD2.634 trillion in assets on its balance sheet at the end of 2014.
"In a world which has moved from being interconnected to being interdependent, our business model is increasingly relevant to companies of all sizes and to individuals whose financial future is linked to economic activity in multiple countries. Very few banks today have our capabilities to connect the entrepreneurial ambitions of our corporate customers to a global network that facilitates the international collaboration needed for competitive success," Flint is to say in his speech.
HSBC shares were up 3.7% at 634.60 pence on Friday morning.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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