(For other news from Reuters Financial Regulation Summit, clickon http://www.reuters.com/summit/FinancialRegulation15)
By Steve Slater and Sinead Cruise
LONDON, May 14 (Reuters) - Being one of the two mostimportant global banks offers benefits to customers and greaterresilience, but there is an increasing need to show shareholdersthat size matters, HSBC's chairman told Reuters.
Big, complex banks have come under pressure from investorsto shrink or break up because the extra costs of managing largeinstitutions, plus a need to hold more capital can outweigh theadvantages of scale long considered the holy grail of banking.
"The challenge and the responsibility of management is todemonstrate that scale has benefits," HSBC Chairman DouglasFlint said on Thursday at the Reuters Regulation Summit.
"You can make the case that it is good for customers but canyou make the same case that it is for shareholders?" he said,adding that investors were increasingly asking that question.
HSBC and U.S. rival JPMorgan are designated byregulators as the world's two most systemically important banks.JPMorgan has rejected calls for its break-up, saying scale hasalways "defined the winner" in banking and saves it $18 billiona year.
"We would echo what JPMorgan said," Flint said. "The networkeffect of being the scale that we are in terms of product groupsand geographies gives us access to a flow of business thatwouldn't be available if we didn't have that network."
But since the 2007/2009 financial crisis, investors arequestioning the benefits of size because returns from big banksare often no better or worse than for smaller firms.
"If you look at the largest banks, it is not demonstrablethat they have a higher return on equity than smaller banks. Youcan actually argue that they don't," Flint said.
HSBC and other big banks are already shrinking to try toimprove profitability, cut costs and also to simplify asregulators demand a tighter rein over controls and compliance.
"Everyone has slimmed down corresponding bankingrelationships because the current responsibility is to not onlyknow your customer, but your customer's customer, andincreasingly your customer's customer's customer," Flint said.
HSBC, Europe's biggest bank, has sold 77 business in thelast four years, and is considering selling more in Brazil,Turkey and elsewhere.
HSBC is also reviewing whether it should move itsheadquarters from London and has said it would make its decisionin a few months. If it moves it would most likely be to HongKong, where it was based before moving to London in 1993.
HSBC used to review its home base every three years, but putthat process on hold while global regulations and public policyinitiatives after the financial crisis created uncertainty.
"There's now sufficient clarity as to where the journey willend that we could start to reflect again on how you would make ajudgement," said Flint, who has been chairman since 2010.
"It's very complex, and ultimately the decision comes downto, given the shape of the business, given the desire to havethe best people working for you, where would you be best placedto recruit the right talent, have the appropriate flexibility tooperate your business across all the places you want to."
Investors increased pressure for a review after a rise inBritain's bank tax in March meant HSBC would face a $1.5 billionannual bill.
Flint said there was no one issue that would dictate thedecision on headquarters, but it would include the future scopeand location of activities, regulation, legal system, taxation,infrastructure and where the bank could get the people itwanted.
"In the last six months there was a lot of shareholderinteraction saying surely it's getting to the point where youhave to look at this again because there are aspects of thiscountry or that country that have changed," he said.
Follow Reuters Summits on Twitter @Reuters_Summits.
For more summit stories see
(Editing by Jane Merriman)
HSBC Holdings (HSBA)
