HSBC has set out its commitment to its UK high street banking operation as it continues to decide whether to shift its headquarters back to Hong Kong.
The bank’s chairman Douglas Flint also pointed to a softening in the regulatory environment, which a year ago he had warned was forcing banks to become too risk averse. Even so the bank revealed it had been hit by $1.5bn (£1bn) of charges in the first half of the year for fines and penalties relating to past misconduct, as it published better-than-expected profits.
Flint said: “One of the most encouraging observations in the first half of 2015 was the growing emphasis in public policy and regulatory consultations and proposals on looking forwards not back. Much of the focus was on setting clarity over the behaviours expected of individuals within our industry and of those charged with supervising or providing governance over their activities.”
The UK’s biggest bank did not provide an update on any decision to move its headquarters from Canary Wharf to Hong Kong, where it was based before it acquired Midland Bank in 1992. It said changes to the tax regime announced in George Osborne’s budget – to water down the bank levy and introduce a new 8% surcharge – were positive, but they would not kick in for another five years.
But Stuart Gulliver, the bank’s chief executive, appeared to soften his tone towards the UK high street banking business. In June he indicated it could be sold off as a result of a wave or regulatory changes but, on Monday he said: “You should work on the assumption it’s a bank we would like to keep…because it’s got excellent returns from what we see going forward and the UK is a profitable banking market”.
Ringfencing the high street business from investment banking operations – based on rules devised by Sir John Vickers in 2011 – must be implemented by 2019 and HSBC has been concerned about how much control it will be able to retain over this operation.
Flint said that the bank was pressing on with its plans to base its ringfenced UK high street bank in Birmingham. Around 22,000 staff would be transferred to the new operating structure by the end of the year, although they will not be relocated then. A new building in Birmingham will be finished in 2018. The UK arm is to be given a new brand, sparking expectations that the Midland name will be revived.
Gulliver has embarked on a series of moves to boost HSBC’s financial performance and on Monday sold the bank’s operations in Brazil to Banco Bradesco, the country’s second-biggest private-sector bank, for £3bn.
While HSBC’s results were buoyed by activities in China, Flint warned that the global environment remained challenging. He pointed to economic uncertainty in both China and the eurozone. “On top of this, geopolitical risks are heightened,” Flint said.
The shares rose slightly to 581p after pre-tax profits in the six months to the end of June rose 10% from a year earlier, to $13.6bn. The improvement was driven by Asia which contributed 60% of the total.
However, despite the plan to cut jobs, the workforce grew in the first half of the year by 2,200 as it hired more staff to tackle compliance problems around the world. It employs 260,000 people globally.
The bank published the usual string of legal warnings alongside its half-year results, including those which relate to the tax files exposed by the Guardian and other publications earlier this year. These showed how the bank’s Swiss arm helped customers evade tax.
The $1.5bn of provisions in the first half include a hit forforeign exchange rigging, for which banks have been fined by global regulators. HSBC was not part of that settlement, which is why it has included provisions in its half year results.