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HSBC goes with the economic flow

Finance Blogger: Ian Fraser Ian Fraser

If you need tangible evidence that economic power is ebbing away from Western financial centers such as London towards more dynamic economies in Asia, then look no further than HSBC’s decision to move its head office from London to Hong Kong.

Ahead of next week’s historic move, which reverses the bank’s 1992 move from Hong Kong to London (a UK government requirement without which the Hong Kong and Shanghai Bank would not have been allowed to take over Midland Bank), Mike Geoghegan, HSBC’s chief executive since 2006, gave a revealing interview to Sky News’s Jeff Randall.

Explaining the move and his own decision to relocate with his family to Hong Kong from next week, Geoghegan said: “West is moving East and HSBC’s biggest business is in Asia and it’s logical for the chief executive of a very large bank to be at the forefront of where the business is growing the fastest.”

However, Randall accused the banker of “cutting and running” since times had become tougher in the UK and because bankers have been made to feel less welcome by the British government.

Geoghegan was fairly critical of the decision of UK Prime Minister Gordon Brown to impose a super tax on bankers’ bonuses, describing this as “a strange tax” that would impact 2,000 to 3,000 people in HSBC, mainly traders and dealers. He said the move is already causing bankers to flee the country and head for more welcoming regimes such as Switzerland, creating a brain drain that could damage London’s status as a financial centre.

He also warned stringent re-regulation and higher taxes for high earners in the UK could sow the seeds of the next crisis. “Now if you regulate, as I suspect we will, if you penalize them with taxes I suspect they will move. All will move to what I call shadow banking or twilight banking, they will move to small offices where they will not be regulated, and I think that is a risk and it may well lay the foundations for a future problem in financial services.”

The HSBC chief also expressed thinly disguised dismay at the borrow and spend mentality of government and consumers in the UK, but lavished praise on the more conservative approach and higher savings ratios in Asia, adding that China’s growth is “unstoppable.”

“There has to be a full understanding that we cannot have the style of living that we’ve had in the UK on somebody else’s money … there has to be a mindset change.”

He called on the government to terminate its neo-Keynesian stimulus package “sooner rather than later,” adding UK and other Western economies must “create societies that don’t need debt.”

On regulation, the 56-year-old HSBC boss said he would prefer to see a level regulatory playing field worldwide.

“The G20 was a really good template and when they had their Pittsburgh meeting and we talked about remuneration, HSBC was one of the first banks to come out and support the G20 remuneration strategy.” However, he expressed disappointment that the proposals are being unevenly applied, with some countries dragging their heels on implementation, which has caused the early adopting UK to be “penalized.”

He said bankers have been unfairly demonized in the UK, saying bank bashing is more in vogue in the country than anywhere else in the world. However, he did manage some veiled criticisms of less well-managed British banks (without naming names, though I suspect he may have been referring to RBS and HBOS), accusing some of forgetting the principle that “you take deposits first and then you lend,” of being so impatient for growth they had “bought assets with quick money,” and of running capital-light policies.

Despite its disastrous acquisition of US lender Household in 2003, HSBC did not fall into these traps.

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Tags: Asia , banking , capital adequacy , China , HSBC , international differences , regulation , UK
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