HSBC has warned that it could shift 1,000 investment banking jobs from London to Paris if the UK leaves the EU.
As the bank announced it was keeping its headquarters in London after a 10-month review, Douglas Flint, the chairman, told the BBC that while the “best answer” was to remain in a reformed Europe, the bank had the ability to “move people between London and Paris”.
Flint chaired a board meeting at which the decision was taken not to relocate to Hong Kong – where the bank was based until 1992 when it moved to London to take over Midland Bank.
Stuart Gulliver, HSBC chief executive, later told Sky News: “We have 5,000 people in global banking and markets [HSBC’s investment bank] in London and I could imagine that around 20% of those would move to Paris.”
Flint denied suggestions HSBC had lobbied the government to soften the regulatory regime so that it would remain headquartered in London. The bank, which employs 260,000 around the world, 45,000 of them in the UK, is one of the five biggest companies listed on the London stock exchange and the biggest bank in the country.
As well as changes to the tax regime, rules intended to hold individual bankers to account have been eased since HSBC announced the review of its headquarters. In his summer budget, George Osborne scaled back the bank levy which, calculated on the size of balance sheets, hit HSBC hardest. Analysts have calculated HSBC will pay £300 million to the exchequer – down from £1 billion under the previous system.
“We had no negotiations with the government,” Flint said. “The government was very well aware of our view, indeed of the view of many other people who commented upon it, but there certainly was no pressure put, or negotiation.”
Even so, analysts said these changes played a part in the decision by the bank’s board to remain in the UK.
Laith Khalaf, an analyst at investment advisers Hargreaves Lansdown, said: “The bank has responded to a big carrot dangled by the chancellor in the form of changes to the bank levy, which will in time make the tax less onerous for HSBC.”
It came down to a choice between the UK or returning to Hong Kong. Andre Spicer, of Cass Business School, said: “The focus on regulation and the current state of the Chinese market has blinded us to other reasons why HSBC chose to stay put – it is likely the collective interests of the UK corporate elite played a role.”
One City analyst did not welcome the decision to stay put. Ian Gordon, banks analyst at the stockbroker Investec, said it was a “missed opportunity” and left HSBC burdened by the UK regulatory regime.
HSBC is one of the first banks to set out how it will respond to the regulatory changes set out by Sir John Vickers’ Independent Commission on Banking to protect taxpayers from another taxpayer bailout by ring fencing its high-street arm from the investment bank.
Vickers, who had warned that the Bank of England had watered down the rules on the capital cushion banks must hold to protect against collapse, said HSBC’s decision to stay supported his view for high capital levels.
“Strong capital buffers for ring fenced banks and HSBC’s decision to stay UK-based go hand in hand. You get the benefits of global banks in London without heightened risk to high street banking,” said Vickers.
A Bank of England spokesperson defended the mix of capital it was demanding banks hold as a cushion. “On a comparable basis, globally systemic banks in the UK will be required to have ten times more capital than before the crisis,” the spokesperson said.
HSBC’s decision was welcomed by the Treasury: “It’s a vote of confidence in the government’s economic plan and a boost to our goal of making the UK a great place to do more business with China and the rest of Asia.”
The employers body, the CBI, said it was a welcome move but that it also “emphasizes the need for the UK to continuously stay competitive on regulation, tax and talent”.
Britain’s decision to leave the European Union will have a major impact on the global insurance industry, and not just for organizations based in the UK. This note outlines key issues and areas in which insurance companies should be planning ahead, including:
- Impact on the workforce
- Impact on pension plans
- Impact on insurance assets and liabilities
John Nelson, chairman of Lloyd’s of London, points out that EU membership brings three specific benefits to the UK insurance industry:
- Passporting rights mean funds don’t have to be localized in other EU jurisdictions to meet liabilities.
- Lloyd’s enjoys bilateral agreements negotiated by the EU with third-party countries.
- Eighty percent of the capital deployed at Lloyd’s comes from outside the UK and is attracted, in part, by access to the single market.
There are likely to be lengthy negotiations on the UK’s ongoing access to EU markets, potentially resulting in a series of bilateral treaties to enable UK firms to passport into the EU (and affording the same privileges to EU insurers and brokers wanting to operate in the UK).
The approach to the regulation of UK insurers is unlikely to change. The Prudential Regulation Authority (PRA) was heavily involved in the negotiation of the Solvency II Directive, based on the UK’s own “risk-based” system, so we can expect the PRA to continue its commitment to a Solvency II-type system for insurance companies.
Prudential may relocate M&G funds following Brexit vote
The chief executive of M&G, Anne Richards envisages to shifting more funds to Dublin and Luxembourg after the Brexit vote.
EU client are very important for M&G, a tenth of M&G’s £255.4bn assets under management were from them.
Unfortunately, investors afraid by the EU referendum have been removing their money, causing a 10% drop in M&G’s first-half profits. That is why, the firm envisages to expand its Dublin base, where it began building a funds business shortly after the Brexit vote, to maintain access to the EU’s single market.
“What we are trying to do … is give ourselves options so we are in a position to react and adapt,” she said. “Dublin and Luxembourg would potentially be options for us if we decide we want to have additional funds domiciled in Europe.”
Mike Wells, Prudential’s chief executive, said there was no question of leaving the UK behind after the country’s vote to quit the EU. Prudential generates 80% of its sales and 70% of its profits outside Europe.
M&G’s operating profits dropped 10% to £225 millions in the first six months of the year, as investors pulled out nearly £7 billion in the run-up to the EU referendum. The fund outflows are now slowing, after the Brexit vote triggered a spike in withdrawals.
This was offset by strong performances elsewhere.
Prudential’s profits rose:
- 15% to £743m in Asia,
- 9% to £642m in the US
- 8% to £473m in the UK.
And group profits increased 6% to £2.1bn, beating analysts’ forecasts of £1.8bn.
M&G’s optimal income fund, which has many European clients, has seen the biggest withdrawals, and its global dividend fund has also been hit. To offset the outflows, M&G had cut costs by 8%.
In the UK, Prudential has withdrawn from bulk annuities and blamed what it said was the onerous capital impact under the Solvency II rules.