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HSBC paid over US$1.1 billion under the bank levy last year, an increase of US$200 million from the year before and the biggest payout of any bank based in Britain. Photo: AP

Hong Kong move could unlock US$14b in value at HSBC

Don Weinland

Moving HSBC's headquarters to Hong Kong from Britain could unlock at least US$14 billion in value for the banking giant's shareholders, analysts say.

A slew of anticipated taxes set to be levied by current and prospective British governments as part of populist clampdowns on banks, coupled with lost income HSBC would otherwise earn on the taxed sums adds up to a US$14 billion reason to leave Britain, believes Sanford C Bernstein senior analyst, Chirantan Barua.

HSBC said at its annual general meeting with investors on Friday that it would review the future of its British headquarters.

"We are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK," HSBC chairman Douglas Flint said at the meeting. "As part of the broader strategic review taking place, the board has asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment."

That new environment is one that saw the bank fork over US$1.1 billion in a bank levy last year, an increase of US$200 million from the year before and biggest payout of any bank based in Britain.

By 2017, the levy for HSBC could rise to US$1.8 billion by Barua's calculations. British chancellor George Osborne increased the levy on bank's liabilities to 0.21 per cent in the 2015 budget from 0.156 per cent. If Britain's Labour Party comes to power in an election in two weeks, the levy could jump to US$2.2 billion in two year's time, Barua said.

"It's less to do with the regulation in the UK and more to do with politics. Specifically the bank levy - which has tripled since inception, keeps increasing and is a permanent tax on banking in a country that is struggling to bridge its deficit," Barua said in a note to clients.

HSBC has about a 10 per cent share in the British market, but pays about 40 per cent of the entire bank levy - launched in 2010 with the aim of discouraging risky trading activity at banks while also contributing to the repair of the banking system's finances in the wake of the 2008 global crisis.

A move to Hong Kong would reduce the amount it would pay by about 75 per cent, saving 1.4 billion of investable funds per year by 2017.

The Hong Kong Monetary Authority jumped at the notion that HSBC, which was founded in the city 150 years ago, was considering a move.

"HSBC is the largest bank in Hong Kong and has deep historical links with Hong Kong," the HKMA said in a statement just hours after HSBC announced the review. "The HKMA takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong."

The bank was based in Hong Kong until 1993, when it bought out the British lender Midland and subsequently relocated to London. But its ties to Hong Kong remain strong. About 20 per cent of HSBC's loan book was in Hong Kong last year, according to data from Barclays. The bank derives around two thirds of its pre-tax profits from Asia.

Standard Chartered, which is set to pay US$563 million in bank levies this year, may also consider a move, Barua noted.

"We continue to keep our UK domicile under review," a Standard Chartered spokeswoman said in an emailed response to questions from the .

"Although we have no current plans to move our domicile, we are listening very carefully to our shareholders views on this issue following the latest increase in the levy, the likelihood of any future increases, and its impact on the group's costs."

This article appeared in the South China Morning Post print edition as: HSBC Hong Kong move could unlock US$14b
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