9 Jun 2015

Will Osborne back down over HSBC’s bank levy concerns?

The timing of today’s HSBC announcement couldn’t be any more convenient.

A day before the chancellor is due to give his Mansion House speech to the City, the bank says it’s cutting 8,000 staff and inching closer to a decision to leave the UK altogether.

Two big factors are driving the thinking.


The first is the ring fencing of its high street bank – it will cost HSBC millions to separate the branch network from its riskier investment banking activities. But the reality is that horse has already bolted. HSBC has started the process.

It’s taken a 200-year lease on a new headquarters for the business in Birmingham and the separation is on track to be completed by 2017.

The only questions that remain is whether HSBC will ultimately decide to spin the retail arm off altogether and what the new division will be called. Both questions, Stuart Gulliver, the CEO, claimed today were still up in the air. But importantly, that the separation must happen isn’t in question, he said. The legislation is fixed.

But where HSBC may believe there is wiggle room is around the banking levy.

We know the levy hits HSBC disproportionately hard because it’s a tax on banks’ worldwide assets, not profits. And because HSBC is one of the biggest banks in Britain, and the world, it pays the biggest chunk of the levy, some £720m last year.

Now that’s annoying for HSBC because it actually makes very little profits in the UK, but because it’s headquartered here, it gets clobbered.


So from its perspective, if the levy is simply going to continue to rise and rise, it makes sense for HSBC to consider leaving the UK altogether.

It’s true, George Osborne has raised the levy eight times since it was introduced in 2010 and there’s a sense he increases it every time he wants to raise more funds, because it’s the politically easy thing to do. But it is in his behest to change that.

The question is, will he? Over the weekend, Osborne’s team seemed to be briefing to the papers that now was a time for stability in the banking sector, which some read as a clue he may freeze the levy –  or not raise it as much as he has done historically.

Either option would be good news for the banks and very good news for HSBC. But whether Osborne decides to act remains to be seen.

Certainly if he doesn’t, the Hong Kong Shanghai bank could well follow through on its threat to hang up its pinstripe suit and go home.

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