Angry banks
Las Vegas leaving
Dec 2nd 2010
From The Economist print edition
Could Britain’s big banks really emigrate?
THREE of Britain’s big banks—the three that didn’t need bail-outs—have taken to whispering that they’ve had a bellyful of Blighty. Faced with more taxes, thickets of red tape, interference with pay and a new and hostile regulator, the Bank of England, these firms darkly hint that they might move elsewhere. Barclays could shift its headquarters to New York, HSBC to Hong Kong and Standard Chartered to either Hong Kong or Singapore. Government ministers say they still want big banks to be based in London, but the banks reckon regulation will only get tougher, particularly if Britain, like Switzerland, imposes capital surcharges above the level required by international rules, or even forces universal banks to break up.
Few besides the Bank of England’s fiercest bankophobes would view the departure of these firms as a good outcome. Two of them, StanChart and HSBC, are widely admired abroad, and gather more in deposits than they lend out, meaning they are not really dependent on borrowing that is subsidised by an implicit taxpayer guarantee (a particular bugbear of the central bank). At the very least these firms probably pay more tax in Britain as a result of being based there, and contribute to London’s role as a commercial hub.
Might they actually go? A senior official in Hong Kong says that neither HSBC nor StanChart is currently in discussions to move there. But the plausibility of the threats has risen. That partly reflects the belief in financial circles that Britain is in long-term decline: one senior regulator thinks it is inevitable that StanChart will leave within a couple of decades. It also reflects the fact that other countries are less strict. The boss of one of America’s biggest banks says that, if he were faced with Swiss-style capital surcharges, he would try to move.
The three banks are anyway hardly very British. StanChart is overwhelmingly focused on Asia and Africa; only 3% of its staff are in Britain. For its part, HSBC was based in Hong Kong until 1992, when it bought Britain’s Midland Bank as part of a strategy of global expansion. But now it is shifting back to Asia, where over half of its profits are earned; its chief executive is once again based in Hong Kong (the chairman is in London). Only about a third of Barclays’ activity is in Britain, partly thanks to its purchase of bits of Lehman Brothers in 2008. Its top ranks teem with Americans. And all three firms have diverse owners. Barclays’ biggest shareholder is Middle Eastern, while Temasek, Singapore’s investment arm, owns a fifth of StanChart.
Yet for all that, the task of moving a bank’s headquarters would be formidable. When HSBC transferred its HQ to London in 1992, says one veteran, it was relatively easy because the firm was still run by expatriate staff who were used to leading nomadic lives. It would be far harder to relocate the bank’s more sedentary British-based staff now. If a firm shifted its listing too, new institutional shareholders might have to be found in the bank’s new home—while the old shareholders would have to give their permission for the move. The boards of directors, all of which are still Brit-heavy, would have to be rejigged—unless board meetings were to become jet-lag experiments. The Hong Kong official adds that regulators there are not yet equipped to handle big global banks.
Perhaps the most intriguing question is whether other countries would welcome these firms—and, if so, at what price. Barclays’ executives are Wall Streeters at heart, but that sentimental attachment counts for little with American regulators and politicians, who would hesitate to take responsibility for a too-big-to-fail British retail bank. Barclays might find it easier to split up and move its investment-banking operation to New York.
StanChart would be welcomed in Singapore, but basing itself there could upset Hong Kong (where it, along with HSBC and Bank of China, issues bank notes) and India, its biggest source of profits, where it also has a stockmarket listing. Meanwhile, HSBC’s balance-sheet is almost ten times larger than Hong Kong’s GDP, meaning that mainland China would be the bank’s ultimate sponsor. That might complicate its dealings elsewhere, for example in India and America, which are wary of Chinese state-influenced firms.
So it seems very unlikely that any of these banks will emigrate soon. Still, inside them the idea of self-imposed exile has risen in salience: from a bluff to a plan B.
Copyright © 2010 The Economist Newspaper and The Economist Group. All rights reserved.
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