Global banking giant HSBC has threatened that costly new capital regulations may force it to leave Britain.
While the firm has made the threat before, the recent announcement follows fall in profits and predictions that the British economy is in for “very challenging” conditions in the year to come.
New British financial regulations could cost the bank as much as 1.5 billion pounds a year, says HSBC, which would make the costs of staying in the UK “too high.”
The company said on Wednesday that though it may be “forced” to move its headquarters back to Hong Kong or elsewhere, the decision would not be made until at least next year.
While the bank netted profits with its corporate clients, HSBC investment bank revenues slipped in both credit and rates. Coupled with this was a U.S. moratorium on mortgage foreclosures, which sharply drove up delinquencies and losses on bad debts.
HSBC, Europe’s biggest bank, also experienced shares falls of more than 5% after announcing that its pretax profit for the third quarter fell to $3 billion, a 36% drop in a year-on-year comparison.
Experts say that the banking and economic growth in Asia could not make up for falling European investment banking profits or the spike in US mortgage defaults.
In a response to the loss in profits and the fight to keep HSBC cost efficient, chief executive Stuart Gulliver has announced a cost cutting goal of $3.5 billion. Gulliver also announced that the bank will heighten its focus on emerging Asian markets while pulling out of countries in which the firm does not have a viable hold on the market.
The threat of leaving due to increased costs is a clear warning to politicians who are considering imposing tougher regulations.
Gulliver said that one particular reform, which would require banks to hold more capital to absorb losses in the case of future crises, would force HSBC to issue $55 billion of senior debt. The annual cost, the bank claims, would be $2.1 billion. Gulliver argues that HSBC handles such a large share of commercial banking deposits that it does not need such a buffer.
The HSBC chief executive went further to say that the bank pays $400 million in UK bank levies for its overseas assets.
“You get to a $2.5 billion cost for being UK headquartered. This is a non-trivial decision, you don’t move your head office on a regular basis,” said Gulliver. He went on to say that the costs might have finally have gotten too high stay.