HSBC’s choice for status quo risks pleasing nobody

February 15, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

HSBC’s decision to keep the status quo risks pleasing nobody. After an extended flirtation with other financial centres, the lender has opted to keep its head office in London. Britain has become a bit more bank-friendly, while HSBC’s former home in Hong Kong is less certain. Still, the group’s public rumination could leave both cities feeling short-changed.

During the 10-month review, Europe’s largest bank by market value batted its eyes at cities as geographically diverse as Toronto and Paris as it ranked locations on 11 criteria including competitiveness, stability and future growth. Breakingviews last year calculated that, based on those factors, Singapore, Hong Kong and even Canada would be more attractive than HSBC’s current base. Yet for a bank founded in Hong Kong and Shanghai almost 151 years ago, a return to China was the only realistic alternative.

After spending about 30 million pounds on lawyers and other advisers, and reviewing more than 1,000 pages of documents, HSBC’s board concluded unanimously that the costs and complexity of moving outweighed the benefits.

This is partly because London has become more welcoming. British Chancellor George Osborne, perhaps realising that courting Chinese leaders would count for little if the United Kingdom lost the biggest foreign lender in the People’s Republic, watered down the balance-sheet levy that has proved particularly costly for HSBC and rival Standard Chartered. Meanwhile, policymakers have made reassuring noises about London remaining a leading financial centre.

Meanwhile Hong Kong, HSBC’s home until the end of 1992, has lost some of its appeal. China’s economic slowdown and uncertain financial policy make some distance from Beijing desirable right now. The former British colony’s legal system is also looking increasingly shaky, a situation that is unlikely to improve when China fully reabsorbs the territory in 2047.

Yet Hong Kong remains HSBC’s second-biggest market, and the bank is investing heavily across the border in the Pearl River Delta. Barring a dramatic change of strategy, HSBC’s business in China will continue to expand. While the bank will no longer review its domicile every three years, its ideal location is bound to remain a recurring question. Its decision to stay put for now could leave China feeling snubbed – without London feeling that much more loved.

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