HSBC has warned it may delay until next a year its decision on whether to remain based in London, as it reported higher profits because of a fall in fines and legal costs.
Britain’s biggest bank caused a political storm in April when it announced it was considering whether to keep its headquarters in London, where it moved in 1992 from Hong Kong to facilitate the takeover of Midland bank. Stuart Gulliver, the chief executive, later said the decision would be known by the end of 2015.
But, as the bank announced results for the first nine months of the year, it said a decision might take longer. “An announcement will be made when the board makes its final decision and, if necessary, a further update will be provided at the time of the full year results,” the bank said.
Douglas Flint, the HSBC chairman, said the board had requested additional information as part of the review. He said the decision would be based “on long-term perspectives rather than short-term factors”.
“We take it very seriously and give it the appropriate amount of work,” said Flint, who was speaking from China, where the bank had just sealed a deal to create a securities trading venture in Shenzhen.
The bank has been linked with a series of alternative locations in addition to Hong Kong, including the US and Canada. Since HSBC announced its review, the British government has made changes to the taxation of banks that are regarded as preferable to HSBC. It has also clarified parts of the regulatory regime that had been concerning the bank.
Ian Gordon, an analyst at Investec, said: “We think that HSBC should move ahead with a re-domicile out of the UK as soon as possible.” Despite the reduction in the bank levy announced by George Osborne in July, Gordon said HSBC was still expecting to pay $1.6bn (£1bn) towards the levy, which is based on the size of bank balance sheets in 2017.
The bank incurred $28m of costs in the third quarter to work on ringfencing retail customers in the UK from its investment banking arm, to comply with the rules drawn up by Sir John Vickers. HSBC has stepped back from reintroducing the Midland name on the high street as part of this exercise.
Nine-month profits were up 16% to $19.7bn; in the third quarter, profits were 32% higher at $6.1bn, largely as a result of a $1.4bn drop in fines and customer compensation. A year ago, HSBC was among the banks bracing for fines for rigging currency markets and facing payouts to compensate customers mis-sold payment protection insurance. In the third quarter, the bank added £43m to its PPI provision, which has reached £2.7bn.
Stripping out one-off items and currency changes, profits were down for both periods. Revenue fell by 4% in the three-month period. The bank cited the stock market turmoil in China and other parts of Asia, as well as a reduction in revenue from overdraft fees in the UK, which had fallen by $133m.
Flint was asked about calls from investors to change the management and said the board backed Gulliver and his team. “Management has good traction on delivering against the plan that has been set out, so I don’t know why anybody would want to change horses mid-course of a strategy that was well received and which is being delivered against,” he said.
In June, in a strategic plan intended to boost the bank’s returns to shareholders, Gulliver outlined plans to cut 25,000 jobs around the world, including up to 8,000 in the UK. Another 25,000 roles would be removed through the sale of operations in Turkey and Brazil. The latest update shows that the number of staff rose by 2,231 from the end of last year to 259,834 at the end of September, as more compliance and legal experts were hired.
The bank is attempting to rectify past bad behaviour, which includes breaching money laundering rules in the US – for which it was fined £1.2bn in 2012 – and the tax avoidance activities in its Swiss arm revealed by the Guardian and other publications.
Gulliver has said he is “pivoting” the business to Asia, where HSBC has traditionally been based.
