HSBC departure would be a 'blow to Britain'

HSBC building sign

If HSBC left Britain it would deal the country a psychological as well as financial blow, according to an academic.

The world’s third biggest bank and the largest outside China, it has $2.6trn (£1.7trn) of assets and its tax bill in Britain last year, including corporation tax, national insurance and the bank levy, came to $2.4bn (it reports in dollars).

It earns its biggest slice of revenue in the UK – $16.1bn last year, compared with $13.7bn from Hong Kong, the bank’s second-largest market. However, it reported a loss of $56m in Britain after $2.2bn in costs for fines and customer compensation. In Hong Kong by contrast, profit was $8.1bn.

The bank employs about 48,000 people in the UK of 266,000 globally, according to its annual report. About 8,500 employees are based at the Sir Norman Foster-designed head office at Canary Wharf. Most of the bank’s remaining UK staff work for HSBC’s retail and commercial bank.

But it is more than taxes and jobs. Despite recent damage to its reputation, such as the tax scandal at its Swiss operation, HSBC’s presence helps support the idea that Britain is a big player in international finance.

Peter Hahn, a lecturer in finance at Cass Business School, said there would be a big effect on the City’s standing and also on the wider economy if HSBC left.

“There would be a huge psychological effect. In HSBC leaving London you would start to wonder how long they would want to hold on to their UK bank,” he said.

“If there are no big international banks from Britain, it isn’t good for the rest of the economy. We are trying to get more small and medium-sized companies to export but we are going to have a banking system that is focused on making mortgage loans. Who is going to help successful middle-sized companies to export?”

HSBC has been a fixture in the UK for more than two decades but for most of its 150 years it made almost all its money in Asia. Last year, 78% of HSBC’s $18.7bn group profit came from Asia.

The Hong Kong and Shanghai Banking Corporation was founded in 1865 in Hong Kong to finance trade between Asia and Europe. The bank expanded throughout Asia and into the US but it was not until 1992 that HSBC gained a big presence in Britain.

Under Sir Willie Purves, then chairman, it bought Midland Bank, which was in financial trouble, before the planned handover of Hong Kong to China. The deal to buy one of Britain’s big four clearing banks was one of the largest in the industry. HSBC moved its headquarters to London the following year.

By the late 1990s, HSBC had replaced Midland’s Griffin logo with its own red and white hexagon design as HSBC branded itself “the world’s local bank”.

HSBC has announced that its UK retail bank’s head office will move to Birmingham because of the government’s policy of dividing retail and investment banking. Now there is talk that HSBC could split off the retail bank, possibly under the Midland name, to refocus on Asia.

At the turn of the millennium, HSBC vied with Citigroup of the US to be the biggest bank in the world with operations spanning Asia, Europe and the Americas.

Despite its size and power, HSBC was regarded as a conservatively run commercial bank with little time for risky ventures. Purves was one of a long line of canny Brits – often Scots – with a military bearing to preside over the bank.

That changed in the early 2000s when Sir John Bond, who replaced Purves in 1998, bought Bital, a Mexican bank, in 2002; Household International, a US subprime lender, the following year; and Republic, a private bank, from the billionaire banker Edmond Safra in 1999.

Each of those deals came back to haunt HSBC. The Mexican operation became a hub for drug gangs’ money laundering; Household lost billions in the subprime mortgage crisis; and Republic’s Swiss operation was revealed by the Guardian to have enabled tax evasion and aggressive tax avoidance by its rich clients.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Friday 24th April 2015 15.28 Europe/London

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