The stated reasons for moving its headquarters include: they will be able to use more leverage as Hong Kong has a lower capital requirement, they will pay less in taxes and they will have a lower cost of compliance with new bank regulation.
One of the key benefits of the FDR Framework is that it is not amenable to regulatory arbitrage. It is implemented the same way globally. The need for and definition of disclosure of current asset-level data is the same in New York City as it is in London or Hong Kong.
Another key benefit is that the cost of compliance is very low. In fact, studies done to support the creation of the Office of Financial Research under the Dodd-Frank Act strongly suggest that the benefits the global financial institutions receives from data standardization are greater than the cost of compliance.
Britain's biggest bank, which has been headquartered in the capital for 19 years, warned key investors that last week's disappointing full-year results have made arguments for shifting HSBC's domicile to Hong Kong "overwhelming".
... "you can't argue with the numbers. Moving to Hong Kong could deliver a 30pc premium [to the share price] overnight."
... Iain Mackay, finance director of HSBC, blamed the bonus tax in Britain and France and the large swathes of new bank regulations for the higher costs. Senior figures at the bank have also pointed out that the Government's banking levy, recently increased by the Chancellor, means that the bank will ultimately pay out as much to cover the tax as it gains in profit from its UK businesses.
Last week the bank said that the return on equity target of 15pc to 19pc was no longer viable. Mr Mackay said higher capital requirements demanded by UK regulators and the lower prospective returns had led to the target being abandoned.
Britain's capital requirements for the UK's leading banks are now the toughest in the world and, with the introduction of the Basel III regulations, the bar is expected to go even higher.
HSBC explained to shareholders that the more relaxed capital requirements in Hong Kong would cost less and generate more profit by allowing it to make greater use of its balance sheet.
One source close to the situation said: "Investors were very disappointed with the spiralling costs revealed in the results. The bank's reply was that the swift solution is to fast forward the review."
... Last month Douglas Flint, the bank's former finance director who is now chairman, told the House of Commons Treasury Select Committee that HSBC was "not trying to leave London". But he warned that the banks faced regular questions from investors about the "costs and benefits" of being based in the UK. Mr Flint described the Government's bank levy as a "tax on being headquartered in London".
Mike Geoghegan, HSBC's former chief executive, issued similar warnings last year. In November he said that the bank levy amounted to a "tax on emerging market growth".
An HSBC spokesman said: "London is ideally positioned as an international financial centre and we have been clear that it is our preference to remain headquartered here. However, we are routinely asked by institutional investors about the costs of being headquartered in the UK and it's clear that the City's competitive position needs protection."
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