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That’s according to analysts at Bernstein, who put out a note Friday after HSBC revealed that it is considering leaving the UK, 22 years after relocating its headquarters from Hong Kong to London. The Hong Kong Monetary Authority responded today by saying that it would take “a positive attitude should HSBC consider relocating its headquarters back to Hong Kong.”
The Bernstein team agreed, saying that Hong Kong would be a natural fit for the massive bank.
HSBC’s relocation would free it from paying a significant chunk of the UK bank levy, according to a note published by the analysts earlier today. The analysts estimate that a move to Hong Kong would lead to a $1.4 billion boost to HSBC’s earnings, creating a hole in the UK Government’s financial plans in the process. That would potentially have implications for UK banks Lloyds Banking Group, Royal Bank of Scotland and Barclays.
The analysts have previously argued that a “messy” political environment in the UK and investor pressure to improve returns would push HSBC and Standard Chartered, which generate the majority of their revenues in emerging markets, to re-domicile.
“Who can the Government next turn to fill that hole?,” the Bernstein analysts ask. “Given the state of excess capital in the core UK banks – especially in the next few years, we wouldn’t be surprised at all if the deficit were to be recouped from the UK banks.”
A reallocation of the gap left by HSBC and Standard Chartered could see the bank levy go up 70% for the remaining UK names, according to the Bernstein research, knocking 4% to 10% off of earnings.
And Bernstein theorises that Barclays would look to counteract the higher levy by getting smaller.
The note said: “For Barclays, this could be the final shove to consider spinning off the US broker dealer or running it down.”
Barclays gained scale in the US via its financial crisis-period acquisition of Lehman Brothers’ US operation, and that business now contributes billions of dollars in revenues to the group. More than half of those employed at the bank who earned more than £1 million in 2013 were based in the US.
Barclays hosted its own annual general meeting in London yesterday, with new chairman John McFarlane, who earned the nickname “Mack the Knife” following cost-cutting initiatives at ailing financial institutions in Asia, Australia and the UK, saying there was a lot of work to be done at the UK lender.
While McFarlane did not mention the investment banking business, he did say that the bank needed to “reposition and improve those segments across the group which operate below our required return”. He said the bank would took a view on the likelihood of the future success of certain business lines and either put in place improvement plans or “curtail those that are unable to be resuscitated”.
Source: http://www.efinancialnews.com/story/2015-04-24/what-hsbcs-potential-uk-exit-means-for-barclays?mod=comment-mostread
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