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New regulatory environment a factor for bank

HSBC considering whether to move HQ out of Britain

HSBCHSBC has confirmed that it may move its headquarters out of London to meet the growing demands in emerging markets and in response to a new regulatory framework, including the “ringfencing” rules that will split the functions of banks.

In a statement issued at the bank’s annual general meeting, chairman Douglas Flint said the board is to “look at where the best place is for HSBC to be headquartered in this new environment.”

He said the global financial system is “transparently and markedly stronger than it was before the crisis” and that it is essential the bank is able to use this strength to support risk taking and entrepreneurial ambition in the communities it serves.

“It is also essential that we position HSBC in the best way to support the markets and customer bases critical to our future success.

“In this regard, we also have to take fully into account the repositioning of our industry being driven by the regulatory and structural reforms which have been put in place post crisis.

“As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK.

“As part of the broader strategic review taking place, the board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment. The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is under way.”

Mr Flint noted the changes in the industry, including technological change that has affected the way customers do their banking. In an indication as to the future positioning of the bank he also referred to the shifts in population and the “urbanisation” in emerging markets.

“One hundred million people will move into China’s middle-class in the next 10 years – creating major opportunities for increased trade and consumer spending,” he said. “It is clear there needs to be massive investment in new infrastructure to support this growth… [and] the newly affluent citizens benefitting from a greater share of economic prosperity will demand the diet and lifestyle of their predecessors.”

Mr Flint expressed further concern over the uncertainty surrounding Britain’s continued membership of the European Union.

“One economic uncertainty stands out,” he said, “that of continuing UK membership of the EU. In February we published a major research study which concluded that working to complete the single market in services and reforming the EU to make it more competitive were far less risky than going it alone, given the importance of EU markets to British trade.”

He told shareholders that he understood their “disillusionment” over recent failings and apologised for “unacceptable behaviours”.

He said: “Let me say very clearly – the recent past has been very difficult for HSBC – since we last met you have all read about failings that have been hard to reconcile with your belief in the organisation you own, with the traditions many of you were part of and with your rightful expectations of how those privileged to be part of a hugely significant industry should behave.

“I and my colleagues understand your disillusionment, share your frustration at having been let down, apologise for the inadequacies in controls that allowed unacceptable behaviours to occur undetected and accept responsibility for restoring HSBC’s reputation and standing to where they should be.

“We all take these issues very personally; the board, my colleagues on the leadership team and the 266,000 colleagues who work for HSBC today when the bank is found wanting. And just like the societies we serve, the vast majority of people who work for HSBC get up every morning to do the right thing for the communities of which they are an integral part, and they are incensed at the damage done to the brand by a very small number of individuals who broke our rules and circumvented our controls.

“HSBC has paid a heavy price. Our reputation has been damaged and the financial burden of the unacceptable behaviour has been borne by you, our shareholders in fines, penalties, additional costs and the opportunity costs arising from diversion of management time – this is clearly wrong.

“As new regulation which will clarify individual responsibility is embedded and fresh legislation comes into force that will widen the sanctions available to address the most egregious behaviour, I hope we will see much greater individual accountability visited on those directly responsible.

“Societal, regulatory and public policy expectations of our industry have changed and changed for the better. Application of these changed expectations against historic business models and practices are highlighting areas where we can enhance the way markets operate and customers are served as well as, regrettably, uncovering matters that require remediation with the possibility of related regulatory sanction or customer redress.

“Nothing illustrates this more painfully than the close to US$200bn of litigation costs incurred by the banking industry in the last few years. It is however, through analysing these instances of past failings that we can improve the financial system for the future.”

>> Daily Business Comment here

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