Analysts sceptical of reported HSBC flotation in UK

HSBC has played down the prospect of spinning off its UK business in a separate stock market listing in a move that would undo its takeover of Midland Bank 20 years ago.

The UK's biggest bank posted a memo to staff on its intranet after The Financial Times reported that up to 30% of the UK operations could be floated on the stock market as a way to address the requirements set out by Sir John Vickers – who chaired the independent commission on banking – for banks to erect a ringfence between their high street and investment banking arms.

Citing sources familiar with the idea of floating HSBC's UK arm, the FT said the unit could be valued at £20bn. HSBC declined to comment.

But in a note to staff the bank pointed out that it the UK economy was now recovering and that a spin off the British banking operations would deprive the rest of the group of that potential growth.

Antonio Simoes, the head of the UK bank, said: "We understand this could be unsettling for employees and want to confirm that this is speculation and nothing more."

The stock market had shrugged off the report that also raised speculation that the UK's largest bank might consider moving its head office away from London.

The bank told staff that the UK was one of its major markets, along with Hong Kong where it was based before the Midland takeover, and that together they make up 40 to 50% of profits.

HSBC – fined £1.2bn a year ago by the US for laundering money for Mexican drug barons – has also faced repeated speculation it could move its headquarters from London because of Vickers and George Osborne's bank levy, which was raised last week and which could leave HSBC with a bill of £650m a year.

Douglas Flint, the bank's chairman, has said the bank might increase salaries to side-step the EU plan to cap bonuses at one times salary, but said this was not a reason to move the bank's head office. He has previously said the bank will review where to keep its head office in 2015.

Analysts at Credit Suisse questioned whether a sell-off would help tackle the Vickers regulatory requirements which must be implemented by 2015. "Is this going to happen? In the past when we have looked at ring-fencing we have considered whether this would lead to break-up of banks and whether this is ultimately the direction of travel. This is a broader industry discussion and in the end this will depend on the final legislation, but at this stage we are unsure of the merits of such a move."

The speculation about a potential flotation of the UK arm - which combines retail banking and investment banking and employs thousands of people - comes as other banking operations are heading for the stock market. Lloyds Banking Group and Royal Bank of Scotland must spin off branch networks – TSB and Williams & Glyn's respectively – to comply with EU rules set out at the time of their bail outs while Santander has said it will consider at the end of 2014 whether the conditions are right for a flotation of its UK arm. OneSavings Bank, which owns the Kent Reliance building society, is also said to be eyeing a potential flotation.

Analysts said that a spin-off might improve the stock market price for the entire HSBC group as the UK operations are not broken out inside the wider group which spans Asia, Africa, Latin America and the US, although the shares were little changed at 655p.

"Such a move would crystallise a higher rating for the whole group, especially in the light of buoyant investor sentiment on the UK economy," said Shailesh Raikundlia, analyst at Espirito Santo.

Powered by article was written by Jill Treanor, for on Monday 9th December 2013 14.55 Europe/London © Guardian News and Media Limited 2010


image: © Elliott Brown

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