LONDON (AFP) - Global bank HSBC said Friday it had launched a review on whether to remain headquartered in Britain as the country increases regulation and taxation of the sector.
In a surprise announcement less than two weeks before Britain's general election, the Asia-focused bank again highlighted its concern about government policy to ring fence British banks' retail operations to protect them from their investment divisions.
The board has "asked management to commence work to look at where the best place is for HSBC to be headquartered" amid "regulatory and structural reforms", said HSBC chairman Douglas Flint in a statement for the bank's annual general meeting in London.
"The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is under way," Flint added.
HSBC has also been hit particularly hard by the British government's banking sector levy, which last year cost it US$1.1 billion (S$1.4 billion), up from just US$200 million in 2013. The levy - imposed on lenders' balance sheets - was hiked again in April.
Flint also referred to the uncertainty facing the bank over Britain's future in the European Union.
HSBC has been based in Britain since 1992 when it took over Midland Bank and shifted its headquarters to London.
"As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK," said Flint in an address to shareholders.
"As part of the broader strategic review taking place, the board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment."
Responding, the Hong Kong Monetary Authority noted that it "takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong", where it is the largest bank.
HSBC, founded in Hong Kong and Shanghai in 1865, employs 48,000 across Britain with around 8,500 staff based at its London headquarters.
Flint insisted that "the global financial system is transparently and markedly stronger than it was before the (2008 financial) crisis and it is essential we are able to utilise this strength to support risk taking and entrepreneurial ambition within the communities we serve".
British Deputy Prime Minister Nick Clegg, who also heads junior coalition party the Liberal Democrats, told BBC radio that he hoped HSBC would remain headquartered in Britain despite the government having "significantly tightened the rules and regulations around banking, quite rightly, because the banking system blew up in our face in 2008".
Clegg added that he would make "no apology for clamping down on excessive bonuses, on making sure the banks pay their fair share by paying much, much more tax".
Victoria Webb, a dealer at London Capital Group, said the timing of the HSBC announcement close to a general election "will be seen as a clear signal to all political parties that business and the City is not happy with the way the electioneering is going" regarding the financial sector.
HSBC stock rallied 2.96 per cent to 630.30 pence in late afternoon London deals as investors welcomed the news.
"HSBC shares have risen 3 per cent today as the market has reacted positively to news the bank may move its headquarters overseas," said Hargreaves Lansdown analyst Laith Khalaf.
"The big benefit to shareholders in it doing so would lie in the company paying less UK tax.
"It would only have to pay the banking levy on its UK operations, rather than its whole global business."
London's financial sector, referred to as the City, has been embroiled in a number of scandals since the financial crisis, with HSBC currently at the heart of an alleged tax evasion scandal.
"There is no excuse for the tax evasion scandal but governments should make the rules more specific as there are many grey areas about tax rules," HSBC shareholder George Thomson told AFP on the sidelines of the AGM.
HSBC is facing a French criminal probe over its Swiss private banking arm after the so-called SwissLeaks allegations it had helped clients hide billions from the taxman.
Documents stolen from its Swiss unit allegedly indicate it helped over 120,000 clients to hide €180.6 billion (S$262.3 billion) from tax authorities.
HSBC also expects to be fined over its role in the Libor interest-rate rigging scandal.