Profit slump is adding to pressure on HSBC to quit UK – Gulliver

A SLUMP in investment banking profits and rising bad debts in America has hit earnings at HSBC as the banking major warned that keeping its HQ in London could cost it an extra $2.5 billion (£1.6bn) a year.

Group chief executive Stuart Gulliver warned that the HSBC board was “acutely aware” of its fiduciary duties, and would decide on the issue of possible HQ relocation after it saw what proposals from the Vickers report the government implemented.

Unveiling a fall in third‑quarter profits to $3bn (£1.8bn) from $4.6bn, Gulliver said that, if the Independent Commission on Banking’s recommendations on banks’ buffer capital were introduced by the government, “we would have to issue $50bn of bonds we don’t need and invest the proceeds from them in gilts we don’t want”.

That would cost $2.1bn a year while the UK bank levy of HSBC’s overseas assets costs it another $400m. “That is a significant amount, “Gulliver said.

However, he said possible relocation was a “non‑trivial decision”, and would be taken coolly and analytically over the next year or two. Gulliver stressed that whatever happened to the domicile of HSBC’s head office, the UK arm would never move its legal domicile out of Britain, the subject of recent speculation.

HSBC’s bad debts swelled to $3.9bn in the third quarter, up $1bn from the previous quarter, as US impairments jumped 64 per cent to $2.4bn. The bank blamed a virtual moratorium on US mortgage repossessions.

Finance director Iain Mackay said: “We believe we’re seeing people taking payment holidays from their mortgages recognising that banks are unable to foreclose on them.”

HSBC became one of the biggest providers of subprime mortgages for customers with a weaker credit history in the US after its purchase of Household Finance eight years ago. It has closed the business and is running down its $50 billion loan book.

HSBC revealed that underlying nine‑month profits fell $300m to $14.4bn. It partly blamed the continuing turmoil in the euro zone, which helped drive its Q3 investment banking revenues down to $3.2bn from $4.2bn a year ago.

Gulliver said he was worried that the eurozone sovereign debt crisis “could go terribly wrong”, with rising doubts around the solvency of Italy, the world’s eighth biggest economy.

“I do worry that there’s an increasing rolling realisation that there’s not going to be a political solution in a timeframe sufficient for markets to stop panicking,” he added.

Amid what Gulliver called “headwinds” facing the industry, HSBC also revealed it had cut its headcount by 5,000 since March.

Apart from the profits disappointment, HSBC shares were caught like other UK banking stocks in the jitters from the eurozone yesterday, closing down 5.8 per cent, or 31.2p, at 506.3p.

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