HSBC could decide whether to move its head office out of the UK by the end of the year, the boss of Britain’s biggest bank said on Tuesday as he warned that the chancellor’s bank levy made it impossible to maintain its payouts to shareholders.
Stuart Gulliver also conceded that the bank’s reputation has been damaged and the morale of senior staff knocked by the revelations about the tax evasion strategies adopted by its Swiss arm. The bank took a $139m charge for potential legal actions related to the operation as it published its first-quarter results on Tuesday.
Last month, the bank announced it was reviewing its London head office – where it has been based since 1992 after buying Midland bank – or move it elsewhere, with Hong Kong seen as the most likely alternative.
Gulliver, who was speaking from Hong Kong, said the bank would set out its methodology on comparing locationsat a strategy day on 9 June but the executive team aimed to make its presentation to the board by the end of the year.
He said the announcement was meant to be apolitical although it has been interpreted as a warning to politicians during the UK general election campaign. HSBC employs 266,000 staff across 70 countries.
“This is not a threat, it’s a very objective review,” said Gulliver, whose personal use of a Swiss-based bank account was contained in the leak of bank customers which was published by the Guardian and other publications in February.
He admitted to being vague on timing of the relocation decision but said “it’s going to take us a few months, not years.”
There have been doubts about whether the Hong Kong Monetary Authority would be capable of regulating HSBC which is about nine times the size of the territory’s GDP, but Gulliver countered this.
“They are regulating about 80% of the profit of the group already, they are quite capable of regulating the group,” said Gulliver, adding that the bank had been based in the former British colony from 1865 to 1992, when it moved to the UK. He said any head office move would affect the roles of 250 people.
The bank paid $9.6bn (£6.3bn) in dividends to shareholders last year but Gulliver said any pledge to shareholders about maintaining a progressive dividend policy was impossible because of George Osborne’s bank levy. HSBC pays more to the exchequer than any other bank through the levy because of the size of its balance sheet. It paid £700m in 2014.
Gulliver said the group was “under significant pressure from our shareholders” to look into relocation.
HSBC’s shares rallied after the review was announced last month although Gulliver said until it was concluded the bank would not be able to quantify savings from a move. . He pointed to capital rules which were also holding back its ability to pay dividends.
HSBC shares fell on Tuesday after the bank reported a 4% rise in profits on the same three months of last year to $7bn.
As well as the bank levy, Gulliver also discussed the impact of the ringfencing rules which come into force at the start of 2019. These rules – devised by Sir John Vickers – require banks to ringfence their high street operations from their investment banking arm. “The UK has rejected the concept of universal banking,” said Gulliver.
But he said it was “way too early” to say if the UK high street bank – the former Midland bank – would be floated off separately, although he set out a series of concerns about the ringfenced bank, which would be located in Birmingham.
“What we have been studying is evolution of the rules and the extent to which we as the 100% shareholder will have management control over that ringfenced bank. ... If we ended up simply as an equity holder ... that would become a difficult issue,” said Gulliver.
Asked about the impact of revelations about the tax evasion strategies in its Swiss arm following the leak of details about 100,000 bank accounts, he said they had “undoubtedly done reputational damage to the firm and had significant negative impact on morale among senior colleagues at HSBC”.
“It has clearly had an impact on people’s sense of pride,” he said, but it had not led to customers moving their accounts.
The bank included new disclosures about its legal risks, one of which included the interest of Financial Conduct Authority in the Swiss bank. “In the UK, the Financial Conduct Authority issued a request for information to HSBC Bank plc and HSBC Holdings plc in relation to HSBC Swiss Private Bank,” HSBC said.
Unlike other banks it did not take a fresh provision for potential new fines for foreign exchange rigging. As well as the $139m charge related to the Swiss bank, there was a $137m provision for more compensation for payment protection insurance mis-selling. It also made reference to a UK court case regarding PPI which could lead to further provisions.
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