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Valentine's Day Gift for London: HSBC is Not Shifting Base

After months of deliberation, HSBC Holdings plcHSBC has finally completed the review process regarding the probable relocation of its headquarters. As a Valentine's Day gift to London, HSBC's 19-member board voted in favor of the city on Feb 14.

In a statement, HSBC Chairman, Douglas Flint, said "As we evaluated jurisdictions against the specified criteria, it became clear that the combination of our strategic focus on Asia and maintaining our hub in one of the world's leading international financial centres, London, was not only compatible, but offered the best outcome for our customers and shareholders. We are very grateful for the hard work and insight of so many who helped in this complex exercise."

HSBC had launched the review in Apr 2015 led by the impact of a U.K. tax on its balance sheet and several other strict regulations levied on the British financial sector. The company had set up 11 criteria, including economic growth, tax and government support, for evaluating the location of headquarters.

HSBC had considered moving to Hong Kong, its previous headquarter for over the past 100 years. The company had shifted its base to London in 1992 following the acquisition of Midland Bank.

Now, you must be thinking what made HSBC decide against shifting its base. We believe following are some of the reasons that triggered this decision:

Change in the U.K. tax policy: In 2011, the David Cameron government had introduced a 0.05% levy on banks' global assets and went on increasing the same to 0.21%. This tax was aimed at discouraging banks from taking excessive risks.

This hit the banking profits hard. In 2014, HSBC had to pay $1.1 billion owing to this levy in addition to normal tax burdens. However, the present U.K. Chancellor George Osborne has since cut and changed the bank levy. It will be reduced to 0.1% by 2021 and will apply only to U.K. operations.

Changing global growth scenario and slowdown in Chinese market: Since the announcement of review process, economic situation in China and Asia as a whole has dramatically changed for the worse. Further, increasing interference of China over Hong Kong and rise in regulatory risks were other factors.

Cost of Shifting: HSBC spent nearly £40 million on the review process. Moreover, in case management had planned to shift, analysts expected $1.5-$2.5 billion in expenses incurred for the same.

Next What for HSBC?

Despite not moving its base to Asia, HSBC remains committed to its 'Pivot to Asia' plan. As per this strategy, the company plans to invest significantly in China's Pearl River Delta region and Southeast Asia (read more: HSBC Retains Focus in China, to Add 4000 Jobs ).

HSBC CEO, Stuart Gulliver, said "Having our headquarters in the UK and our significant business in Asia Pacific delivers the best of both worlds to our stakeholders." The company still remains optimistic about growth prospects in Asia. For the nine months ended Sep 30, 2015, nearly two-thirds of the bank's pre-tax income came from Asia.

Further, HSBC will end its policy of reviewing its domicile issue every three years, and would only do so if there is "a material change in circumstances."

Additionally, HSBC is undertaking several restructuring measures to cut costs and redeploy resources in accordance with future growth opportunities and adjust to changes in the global operating environment. With this aim, the company had announced massive job cuts and other strategies in Jun 2015.

Currently, HSBC carries a Zacks Rank #4 (Sell). Better-ranked finance firms include SVB Financial Group SIVB , Bank of the Ozarks, Inc. OZRK and BofI Holding, Inc. BOFI . All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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