Speaking to the BBC this morning David Cumming, head of equities at Standard Life Investments, said that it would support a decision by HSBC management to move its HQ out of the UK, because the bank was being put at a competitive disadvantage by ‘ever increasing capital requirements’.
He added that ‘unless the regulator changes tack’ such a move would result in better growth and earnings prospects for HSBC, so that from a shareholders point of view a move out of the UK would make sense.
Although HSBC has been making grumbling noises about the regulatory regime in the UK for ages and has said it will make decision before it AGM in February, this is the first time that a major shareholder has declared publicly its position on the matter. It is bound to put pressure on George Osborne ahead of the Autumn Statement later this week to do something to help ensure that HSBC’s HQ remains here in the UK.
Where would the bank – which employs over 40,000 in the UK (mostly across its branch network, who would remain of course) – move to? Because of its size there are reckoned to be only three alternatives – Hong Kong, Paris and New York. It makes 80% of it profits in Asia and has a big presence there, so HK would seem the obvious choice. CEO Stuart Gulliver is known to be keen but the political situation there is potentially risky, which may put other directors off.
New York would be the safe alternative, with Paris the outsider. Moving to France would at least allow those who want to, to make a point about the UK regime without having to up sticks to another continent .
It’s obviously an important issue, but there is also another way of looking at it – that it’s a huge distraction that is taking up a great deal of management time. Some reports suggest that as many as half of HSBC’s board meeting agendas this year have been taken up with assessing the pros and cons of decamping, while gathering and processing vast amounts of data is absorbing resources that might be better spent on other things.
The bank’s financial performance is certainly showing signs of neglect – it’s missed a string of financial targets and its return on shareholders’ equity is down at around 7%, from just under 11% four years ago.
The situation is further complicated by succession issues around chairman Douglas Flint. He could be stepping down as early as next year, so the hunt is on the find some new non-execs who might be able to replace him. Paul Walsh (ex CEO of Diageo)and Henri de Castries (ex Axa boss)have already been signed up – de Castries is probably chairman material, Walsh less so Because of his inexperience in finance, but the bank will likely want at least one other to choose from.
So if you fancy a go and don't mind a bit of uncertainty over which continent the board meetings you'll be chairing wil be on, now’s the time to brush up your CV and get in touch...