It may not be taking as long as the Chilcot Inquiry’s final report, or the government’s dithering on where to build a new runway in the south east, but HSBC’s decision on whether to move its HQ or stay put is becoming interminable.
In April, it made the dramatic announcement that it was thinking about moving away from London and the much-hated, now-axed bank levy. Today, as it announced its third quarter results, it’s given itself the option to kick the can into 2016.
‘There is a considerable amount of work still to do,’ it said. ‘Whilst the target for completion of the review was initially set as by the end of 2015, this is a self-imposed deadline that can be moved should the Board require further work to be performed.’
Nothing like a ‘self-imposed deadline’ eh. Rumours emerged a couple of weeks ago that HSBC was having doubts over the obvious choice, Hong Kong (more than 60% of its revenues come from Asia), and was looking at the feasibility of moving to the US.
It may be a case of deciding which is the least-worst option. Hong Kong carries the risks of greater exposure to China’s slowdown and the dangers of an authoritarian government interfering in its affairs and even forcibly taking it over. The US is known for being rather heavy-handed with foreign banks. And although the UK’s bank levy has been dropped, its replacement – an 8% profits surcharge – isn’t exactly ideal either.
Meanwhile, HSBC isn’t doing badly in its current location. It raked in pre-tax profits of $6.1bn (£3.9bn) in the third quarter, up 32% from $4.6bn last year and well above analysts’ average expectations of $5.2bn. That was despite wild stock market gyrations in Asia over the summer as China slowed down, which meant sales slipped 4% to $15.1bn.
The soaring profits were mainly down to fines, settlements and compensation for UK customers (for PPI mis-selling and the like) being $1.4bn lower than the third quarter of 2014. So HSBC may decide that, given it’s cleaned up its act (no more helping Swiss private bank clients avoid tax…), it isn’t necessary to move to Asia to avoid the punishments of western regulators.
On the other hand, despite good quarterly profits, HSBC is still seen as underperforming – shares have fallen 19% in the last 12 months and dropped more than 1% to around 502p today. Investors may well demand more drastic action than the ongoing cost-cutting and asset sales – so a HQ move could be just the ticket. Besides, a pessimist might add, if there is another financial crisis, at least there's some certainty that China and the US have deep enough pockets for another round of mega-bail outs.