HSBC Q&A: The rationale behind the bank's restructuring
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Version 0 of 1. Q | What has the HSBC hierarchy announced? A | A lot. Some 25,000 jobs are to be axed globally as part of plans to save $5bn a year from 2017 and boost the bank’s flagging profitability. The “ring-fenced” UK bank, containing things like retail deposits, mortgages and small business banking – that under new laws have to be protected from riskier investment banking – will also drop the HSBC name in a re-branding exercise. It may yet be spun off if the wider HSBC group is not allowed a say in its future strategy. The group will also pull out of Turkey, and withdraw from most of its operations in Brazil. Investment will be shifted even more towards Asia than it is now, particularly China’s Pearl River Delta, which chief executive Stuart Gulliver positively drooled over in his presentation. Q | Where will the jobs be lost? A | Of the 25,000 cuts, up to 8,000 will come from the UK workforce, equivalent to one in every six of HSBC’s UK employees. Both the ring-fenced retail bank and the London-based investment bank – which HSBC plans to shrink – will be affected, although Mr Gulliver said that most of the reductions could be achieved through not replacing people who leave. Staff turnover currently stands at more than 3,000 annually. Q | Will the Midland Bank brand return to the high street? A | We don’t yet know. Mr Gulliver says HSBC plans to consult on this, although it’s not entirely clear how this will happen. There is a certain logic to it, however. The bank is, after all, returning to its roots by headquartering the UK retail operations in Birmingham. The Midland name, with its once famous griffin logo, bit the dust 15 years ago to be replaced by the red and white hexagonal HSBC symbol, which can be seen all over the world. But it still carries a certain cachet with customers of a certain age. On the other hand, First Direct, HSBC’s telephone and internet bank that will also be within the ring fence, has achieved high marks from customers so it may make sense to extend it to cover the entire operation. Q | Why is it talking about leaving? A | There’s a certain amount of petulance at work here. HSBC is an institution of some pomp and has long seen itself as just a bit better than its grubby UK rivals. The criticism that has come its way since it has become embroiled in a string of ugly scandals has not sat well with the executives who have their hands on the levers of power. Those executives also complain that the bank pays too much tax in the UK, not least via George Osborne’s bank levy that is charged against a bank’s global balance sheet (HSBC’s is the biggest of the UK banks). What hasn’t been discussed is that they also personally pay more tax through the bank being headquartered in London, which won’t have escaped their attention. The bank only moved its headquarters to London at the beginning of 1993 as a consequence of its takeover of Midland. With the business now increasingly shifting back towards Asia, some have argued for the bank to move its base back to the region from whence the majority of its profits are made. Q | Will it leave? A | That’s the six million dollar question. Opinion remains divided. While there is more tax to pay in London, the bank does benefit from a legal system boasting an independent judiciary that is more even-handed than some. London regulation may be more onerous than it was, but there are at least checks and balances to call on. And it’s notable that the UK has (to the justified consternation of many of its citizens) singularly failed to prosecute the bank over the activities of its Swiss unit, which has been accused of helping thousands of wealthy clients to avoid tax. The French, the Americans, the Belgians and the Argentinians are all gunning for HSBC. Even the Swiss levied a fine thanks to the work of the Geneva prosecutor’s office. Q | Where will it go? A | Hong Kong, HSBC’s former home, would seem to be the natural landing spot. But there is always the very real risk that the bank could suffer from political interference from China were it to do so, and the Americans might not be all that happy to see the second-biggest clearer of dollars under the Chinese thumb. Singapore would therefore be an option. Mr Gulliver raised the importance of corruption ratings from Transparency International in the decision. Singapore (seventh) scores even more highly than Britain (14th) in its corruption league table. Hong Kong (17th and declining) still just about makes the top 20 but China languishes at 100th. Q | Should we care? A | Mr Gulliver reckons that only 250 or so people will be affected by a move. The City’s advocates say it would be a bitter blow. On the other hand, the UK would no longer be on the hook were HSBC to fail. Some might venture to suggest that given the bank’s status as (to quote the Americans) a “rogue institution”, we might be better off without Mr Gulliver and his friends. |