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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6 reader comments

  1. Philip says:

    The City would be better off if this bunch of unconvicted criminals left (see John Snow’s blog)

  2. The Oriental says:

    Will Siobhan Kennedy please stop using this Daily-Mail-esque language?! The reason why the HSBC Bank have to pay a bank levy is not because they have their HQ in the UK, but the fact that their worldwide banking operations are divided up into local “subsidiaries” but are all still ultimately owned and controlled by a “holding company” “incorporated” (created) in England and Wales under the Companies Acts. The HSBC Bank are not in fact a single legal entity, and therefore the word “domicile”, which is normally used in the description of the tax affairs of an individual natural person, is probably an incorrect misuse.

    I think that HM Treasury are unlikely to be able to change the rule, in such a way, as to benefit mainly the HSBC Bank, the Standard Chartered Bank and Barclay’s Bank, in terms of the amount of the Bank Levy that they would be saved from having to pay, without immediately opening up legal challenges from the more domestically-orientated British banks, and also the British banking subsidiaries of foreign banks, which would naturally see any such change, lobbied semi-privately especially by the HSBC Bank, as being unfair favouritism to their direct (or latent) competitors in the same banking industry.

  3. Alan says:

    So much smoke and mirrors. Article avoids the corruption at the heart of HSBC and it’s conflict of interests where government is concerned.

  4. Philip Edwards says:

    Siobhan,

    £720 million?…….Pffffffttttt……

    Let’s get it in perspective; the banks set aside £30 BILLION to repay fraudulent PPI scams.

    As for Georgy Boy Osborne and the bankers – this is the same well scrubbed public school boy who wants everyone to stop criticising the bankers, the same people who brought the global economy to its knees. So much for their “talents.” While he’s at it, Georgy Boy is busy giving loads away to his rich chums.

    Why am I not surprised?

  5. anon says:

    sadly the Banks are probably colluding again but certainly not in a way that can be shown and possibly not even in an illegal manner? They will be too smart to have any direct contacts but the merry dance will go something like this. HSBC issues what amounts to a threat to the Government regarding the bank levy suggesting that they may otherwise move a lot of their operation out of London, -a decision which may have already been made already either way.

    if the Government budges or shows weakness on this point, a second bank maybe ………… will then raise the stakes and ask for more suggesting it will otherwise leave too. The Government will find is difficult to back down from any changes it might have made to appease HSBC. and it will continue in this way.

    The Bankers will take as much as they can like locusts and will then move on. that’s the problem, what is the solution, we should never have broken the one of the principles underpinning capitalism of limited liability and bailed out bankrupt financial institutions,

    broadly these Banks are a past its sell by date business model where the margins will become even more smaller, and which will rely increasingly on speculation even to survive. out of desperation they may try to rig the market and break the rules (if) they can get away with it ie in a sense if they can intimidate the Government or as they put it around to stop ‘Banker bashing’ (known to the rest of us as enforcing the law), for them sense these banks do not have another option given how things are going and their current business model

    given that their industry has a very short life anyway it would be prudent could I suggest to focus on the future rather than try to placate what will become increasingly irrelevant dinosaurs from the past

    HSBC thinks it will be easy to play off countries against each other to boost their share price but it is quite possible that if the right relationship exists between us and say China for example, this great country will place far greater store in nurturing this relationship in keeping with their culture in business ? (reminded again of one of the Banks ads) than helping some running dog capitalistic company put their snouts in another trough in their back yard (again), sorry mustn’t be rude, apologies

    we need to play hard ball, just try to do what is actually right anyway, close all tax havens we can at once and start trying to prosecute anyone in the financial industry who has committed crimes,

    so what to do with the Banks, forget about them and concentrate on the future, just my thoughts

    1. The Oriental says:

      If the HSBC Bank were to exit London and England and return back to Hong Kong, good luck to them, goodbye and good riddance! I am personally sick and tired of the HSBC Bank through PR, sponsorship, advertising and intense behind-the-scenes paid lobbying and advocacy subverts the British press, the debate on the place of Britain within the EU and (the supposed) British democracy!

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