The Bank of England’s pressure on HSBC to cancel its dividend for the first time in 74 years has reignited a debate at the top of the bank over whether it should redomicile to Hong Kong.
Several people familiar with the matter said the BoE’s intervention had prompted anger among some board members and executives, with calls to reopen the question of whether the group’s legal base should move from London.
HSBC was one of five UK-based lenders that agreed on Tuesday night to withhold 2019 dividends, bowing to pressure from the BoE’s Prudential Regulation Authority, the UK’s top financial supervisor.
The move is particularly damaging for HSBC, which generates more than four-fifths of its profits from Asia, despite being headquartered in London. A third of its shares are owned by retail investors in Hong Kong, who count on the dividend as part of their income.
“For the regulators at the Bank of England to put a gun to the head of the board of directors is terrible,” said one director. “This should be a decision for the board to take. We should not be in the UK. The calls for redomiciling will increase.”
Hong Kong investors have reacted with anger to HSBC’s decision to withhold the dividend for the first time since records began back in 1946. Shares in the lender fell 9.5 per cent in London and Hong Kong trading, wiping £8bn from its valuation.
One executive, who said they were now leaning in favour of the bank moving back to Hong Kong, said the BoE’s demand that HSBC withhold its dividend had sent “out a message that we are weak when in fact we are in a good position”. Another executive described the BoE’s pressure as “very questionable”.
Those opinions are not representative of the group’s position, according to one person briefed on its stance, who added that the bank understood the reasons behind the BoE’s push on dividends. The central bank said the dividend cancellations would conserve capital buffers and give lenders “extra headroom [to] help the . . . economy” during coronavirus.
A spokesperson for HSBC said: “There are no discussions to review HSBC’s global headquarters and no plans to reopen the issue.”
HSBC was based in Hong Kong from its founding in 1865 until 1993, when it moved its domicile to London to smooth the way for its takeover of the UK’s Midland Bank.
In 2016, the lender said it would keep its headquarters in London following a review of whether it should move elsewhere, a decision that was intended to settle the question for the medium-to-long term.
Following its dividend announcement on Tuesday, HSBC’s chairman Mark Tucker called several of the bank’s top shareholders to explain the decision, according to one person briefed on the discussions. Another person said he had spoken to Ma Mingzhe, his counterpart at Ping An, the bank’s second-largest institutional shareholder.
“Being a UK listed company has many advantages — the rule of law, London’s talent and intellectual capital, the timezone — but when Hong Kong woke up they were thinking ‘what just happened in London?’,” said Ronit Ghose, head of bank analysis at Citigroup.
Before the financial crisis, banks such as HSBC and Standard Chartered were able to operate with “less capital and higher credit ratings because of the halo of being an international bank in London”, he added. “Now there is a question mark about whether it is better to be headquartered in Singapore or Hong Kong.”
However, a UK investor said that HSBC had moved to London “because of concerns about politics” — a reference to the theory that the bank switched its domicile in the 1990s to escape the clutches of China’s Communist party ahead of the 1997 handover of Hong Kong by the UK.
“HSBC likes the fact they’ve got some sort of defence against China,” the shareholder said. “I could see why [Hong Kong] retail investors would be irritated, but it’s the price to pay if you’re going to domicile in the UK with all the protection that gives you.”
Additional reporting by Primrose Riordan in Hong Kong and Nicholas Megaw in London
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