5th May 2015
HSBC has said it will decide whether or not to move its headquarters out of the UK within months as it reported 4% increase in first quarter profits to $7.1 billion, beating analysts’ expectations.
The sum is equivalent to £4.69bn sterling and is largely attributed to gains in the investment banking side of the business.
HSBC has been based in the UK since 1993, when it took over Midland Bank, and says that only 250 jobs out of 48,000 UK-based employees would be transferred in the event of a move.
Last year HSBC paid a bank levy of £750 million bank levy, which was more than any other bank and just over a third of the total £2.2 billion collected by the Treasury. The sum is set to rise significantly over the next two years.
Group chief executive Stuart Gulliver told journalists that “it’s quite hard to hire people in Guangzhou and explain to them why their compensation has to be constrained [by UK rules], particularly when US and others don’t have to.”
He explained that the decision to report the review of the bank’s headquarters before the general election was designed to make it “as apolitical as possible”.
HSBC has been under fire from accusations that it took part in the fixing of foreign exchange rates and assisted clients to evade tax via its Swiss private banking arm.
Graham Spooner, investment research analyst at The Share Centre, says: “This morning HSBC reported that profit in Q1 was up 4% to $7.1bn, bolstered by a strong performance in its markets business. Additionally, the bank said it had made a net profit of $5.26bn compared to $5.2bn in the same period last year, helped by the sale of a stake in Industrial Bank. For investors, these figures indicate that the business is showing signs that it is recovering, following a difficult last quarter in 2014.
“Management has recently come under criticism as the bank struggles to boost profitability amid heightened regulatory costs. However, the group has been working hard to make the bank more manageable and streamlined, and investors will be pleased that operating costs were slightly lower, compared to a year earlier.
“Last month, HSBC announced a possible move of its headquarters from the UK to Hong Kong or Shanghai due to increased taxes and regulation, and investors will be disappointed that there has been no further update today. However, the bank is set to present a refined strategy on 9 June, which analysts expect will lead to further shrinkage.
“Income seekers in the banking sector have been hit hard in recent years, however HSBC has remained a significant payer and as a result, we recommend the group as a ‘buy’ for lower risk investors. Although progress may continue to be slow, we believe the shares could be a better option than other banks as the group is viewed as more conservatively managed with a superior balance sheet and deposits.”