HSBC stays in London, but other uncertainties remain
Shares in HSBC listed in Hong Kong rose substantially in early trade there on Monday after the banking giant announced that it would remain headquartered in the UK. But analysts warn that, despite the removal of uncertainty as to where Europe’s biggest bank will call home, its shares are unlikely to retrace much of the huge fall they’ve endured since last April.
HSBC said early on Monday that its 19-strong board had voted unanimously to stay in the UK, citing the country’s “internationally respected regulatory framework and legal system and immense experience handling complex international affairs”. The bank’s Hong Kong listed shares rose just over 3% in early trade on the news, but are still down nearly 20% so far this year in what has been a bruising period for financial stocks generally.
Owain Bennallack, an analyst at the Motley Fool website, said it wasn’t surprising that in the end the bank chose to stay in the UK at this point. Castigating Chinese authorities for their “cack-handed” response to this year’s stock market rout, he said of Hong Kong now: “it’s not an attractive place for a bank with HSBC’s heritage to say, yes, this is where we do business.”
The banking sector generally is facing a grim cocktail of slow economic growth, low interest rates and increased regulation. In the US, there are fears that the large banks are over exposed to the energy sector, which is imploding thanks to low oil prices. Meanwhile, in Europe there are worries about exposure to troubled banking sectors such as Italy’s, which have hit the likes of Deutsche Bank hard.
None of this will be changed by HSBC’s decision to stay, and big banks’ stocks are down somewhere between 10% and 50% for the year. HSBC has its own problems, too. It has struggled to hit return-on-equity targets, while costs have soared, Bennallack said in a webcast.
“It also doesn’t look as if interest rates are not going up any time soon, which is terrible for banks with lots of assets like HSBC,” he went on.
The bottom line is that it’s going to take “a lot more going right across the banking sector” to see the shares climbing back to where they were last April, he concluded.
HSBC first announced that its domicile was up for review last year. It is thought that this review was sparked by increased regulation of the banking industry in the UK. But in the last Budget, the Chancellor George Osborne introduced a gradual reduction in the bank levy on balance sheets – which had hit HSBC particularly and may have helped keep the bank’s brass plate at London’s Canary Wharf.
The financial environment in China and Hong Kong, meanwhile, looks less benign than it did. Chinese authorities have come under fire this year for their currency management and also for the conduct of market trading more broadly. Away from the markets, there have been renewed question marks over due process after the apparent State abduction of Hong King book sellers accused of selling books hostile to the leadership of the ruling Communist party in Beijing.
HSBC was founded in Hong Kong in the middle of the 19th century but shifted its headquarters to the UK to satisfy local regulatory requirements after the purchase of Midland Bank; at the time a large UK lender.
It’s not all about where you call home. HSBC’s shares have had a long drubbing, which clarity over its domicile alone won’t reverse
