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* HSBC board to discuss headquarters later this month
* Investors want HSBC to be clearer on strategy
* China slowdown puts question mark over its Asia "pivot"plan
By Sinead Cruise and Lawrence White
LONDON/HONG KONG, Jan 18 (Reuters) - As HSBC prepares to decide which country it should call home, a growingnumber of its investors want the bank to address a biggerquestion: what does it really want to be?
HSBC's board is due to meet later this month and is expectedto discuss whether it should quit its UK headquarters and shiftoverseas, with Hong Kong seen as the most likely alternative.
But for investors, analysts and some HSBC executives, thereal debate underlying this decision is whether it wants tocontinue to be a global corporate lending giant with a largeinvestment banking and trading business or become a simpler,Asia-focused trading and retail bank.
If the former is the case, London - as a major financialtrading centre with a favourable time zone - is the more obviouschoice, some say. Otherwise it should abandon a country with oneof the toughest regulatory regimes globally and return to Asia,where the bank was born more than 150 years ago.
Chief Executive Stuart Gulliver has already led a drive toslim down Europe's biggest bank, pulling it out of 78 countriesor businesses since 2011. But concerns linger about high costs,lacklustre returns and how to adapt to a regulatory frameworkhostile to global banks.
"It is a bigger issue than just where to have the HQ," saidone of HSBC's top-15 investors, speaking on condition ofanonymity because of the sensitivity of the issue.
"Being a global bank has to have benefits for largecorporate clients but that does not mean that HSBC has to offerall services to all clients in all areas."
An HSBC spokeswoman, commenting on the HQ issue and futurestrategy, referred to the bank's third-quarter results statementin November, when it said the domicile review would focus onlong-term perspectives, as opposed to short-term factors.
"An announcement (on domicile) will be made when the boardmakes its final decision and if necessary a further update willbe provided at the time of the full-year results announcement(in late February)," she said.
CHINA PAIN
Last June, HSBC looked set to be opting for the narrowerAsian option, when it unveiled its Asia "pivot" strategy - aplan to redeploy up to $230 billion in assets saved from cutselsewhere to the region and the urban sprawl of China's PearlRiver Delta in particular.
But seven months on, the region's markets and economy lookanything but welcoming.
As Chinese growth has slowed, perceived missteps by theauthorities have stoked concerns in global markets that Beijingmight be losing its grip on economic policy.
China's benchmark Shanghai Shenzhen CSI 300 index has tumbled around 16 percent since the start of the year.
"They (HSBC) first need to decide what they want to be,then they can figure out which jurisdiction suits them best. Ifthat business model is Asian, then fine, a move makes sense,"said Barrington Pitt Miller, equity analyst at U.S. fund firmJanus Capital, who said the Chinese slowdown had raised a "bigquestion mark" about the bank's business plan.
"But if you decide you want to be global, then I'm not surethe next two generations of senior non-Asian stakeholders -customers, capital providers, regulators and employees - will beready to embrace that change of domicile."
A senior source inside HSBC said the turmoil in Chinesestock markets is viewed by Gulliver as a short-term issue andshould not influence a "50-year" decision about itsheadquarters.
But if the company shifted base, the cost of raising capitalfrom Europe and the United States through bonds may rise, sayanalysts.
"Should it play out that investors are more nervous aroundthe name under a new non-UK domicile, then the bank might haveto pay a bigger premium for the so-called increased risk ofbeing a quote-unquote emerging market name," said Oliver Judd, asenior credit analyst at Aviva Investors, which owns HSBC bonds.
UNIVERSAL PROBLEMS
Meanwhile the senior HSBC source said plentiful liquidityfor companies in Asia, and worse-than-expected economicperformance in China and Southeast Asia, had made findingprofitable lending opportunities difficult.
The slowing growth in particular could spell trouble forHSBC in China, potentially causing the bank's bad loan ratio inthe country to more than double from 0.6 percent to 1.4 percentby the end of 2016, JPMorgan analysts wrote in a Jan. 6 note.
Ratings agency Moody's also warned of "considerable downsiderisk from a material slowdown in China".
Asia accounted for over 60 percent of the bank's pre-taxprofits in the first nine months of 2015 and around 78 percentin 2014, according to the note published on Monday.
If HSBC opts to stick with London though, many of the issuesthat prompted it to announce its headquarters review last Aprilwill still be there, despite Britain largely scrapping a heftylevy on bank balance sheets.
London is an obvious choice if HSBC is to remain a"universal" bank that combines standard deposit-taking andlending with more sophisticated investment banking activity.
But Britain's tough ring-fencing regulation and therequirement for ever-thicker capital safety cushions mean theuniversal banking strategy is increasingly expensive for banksto pursue.
HSBC has responded by pulling back from some of its"non-core" activities but some investors say its board should gofurther, and pick a region to be champion in once and for all.
"HSBC is a collection of businesses which don't necessarilyfit very well together, and the board will be under considerablepressure to start splitting them up if they don't do somethingmore for shareholders sooner rather than later," said AliMiremadi, a fund manager at THS Partners, another HSBC investor. (Additional reporting by Simon Jessop and Jane Merriman;Editing by Rachel Armstrong and Pravin Char)
