HSBC and Standard Chartered are exploring the feasibility of quitting London for a new home in Asia after Britain raised a tax on U.K. banks by a third last month. Analysts say the cost of moving could be between $1.5 billion and $2.5 billion per bank.
HSBC signaled possible shift
Britain has increased the bank tax by eight times since it was introduced in 2010 to ensure banks make a “fair contribution” after the financial crisis. With the upcoming May 7 election, the Labour Party indicated its plans to increase the tax by 800 million pounds to 4.5 billion pounds a year for the banking industry as a whole, if it wins power, to pay for childcare for three- and four-year-olds. Prime Minister David Cameron’s Conservatives are neck and neck with the Labour Party in the polls.
HSBC chairman Douglas Flint said at a a shareholder meeting in Hong Kong on Monday: “We are beginning to see the final shape of regulation, the final shape of structural reform and as soon as that mist lifts sufficiently, we will once again start to look at where the best place for HSBC is.”
While HSBC chief executive officer Stuart Gulliver said the bank is committed to increasing its dividend, Flint said extra taxes limit the amount of money available. Europe’s largest bank paid $9.6 billion in dividends to shareholders last year.
Last February, HSBC reported lower profits and dividends for the full year 2014. Its dividend per share was 50 cents, against the consensus estimate of 51 cents in dividends per share.
HSBC, Standard Chartered reach a pain threshold
Several investors indicated to Reuters that they want HSBC and Standard Chartered to do a thorough analysis on whether it makes sense to move after Britain raised the tax.
Citing a person close to one of the banks, Reuters reports that the shift to another location is a lively conversation internally, as it’s an issue being raised by investors and sell-side analysts. Both HSBC and Standard Chartered make most of their profits in Asia and face a combined $2 billion this year under the annual U.K. bank tax, up from $1.5 billion last year and almost double what they paid in 2013.
While HSBC faces a bill of $1.5 billion this year, which is about 7% of its expected profits, Standard Chartered is set to pay $500 million, or about 9% of its earnings. Bernstein analyst Chirantan Barua said another hefty hike could be the final catalyst that forces banks to move. HSBC described the levy as a tax on staying in London. Four years ago, the largest bank in Europe said it would review its domicile in 2015, although the bank declined to comment on if or when any review might occur.
Joining the chorus to shift to a new home is Aberdeen Asset Management, the second biggest shareholder in Standard Chartered, with an aggregate 9.4% stake. Steve Slater and Sinead Cruise at Reuters believe HSBC could move back to Hong Kong, one of the few places that could handle its $2.6 trillion balance sheet, while Singapore could be the most likely new home for Standard Chartered, as most of its businesses are already run there.