There’s a saying in Japan that the biggest eagle never shows its talons.
Fair enough, but whose talons appear first when two big eagles meet in a territorial dispute?
Just such a scenario is being played out in front of us as HSBC and the UK government engage in a tree-top dance around whether or not the Asia-centric bank relocates to its former home in Hong Kong or perhaps somewhere else in the region it’s been doing business in since 1865.
This cha-cha of big birds is also a good way to understand just how global banks interface with the governments that regulate them, tax them and every once in a great while need them and/or appreciate them.
From a communications perspective, HSBC is playing its hand well, particularly since this Kabuki is taking place in an environment where the previous sins of banks and bankers are being subjected to a culturally induced, press-inflamed case of biological magnification, the end game of which could be a severely shrunken City of London that will be known as a centre of mediocrity for retail banking and the insurance sector.
To set the scene, each side is wrestling with a dilemma. HSBC, which shifted its headquarters from Hong Kong to London in 1992 after the takeover of Midland Bank, is now reviewing if it makes sense to move back to Asia to be closer to the clients from which it generates most of its revenue. HSBC is conducting its review amid numerous governmental challenges, including the need to ring-fence its retail banking operations and the uncertainty over the UK staying in the EU.
On the other side of the table, the UK government isn’t keen to see the only truly upright global bank disappear from Canary Wharf, along with its nearly 50,000 jobs and taking its large tax receipts with it.
The irony here is that the government, through its vitriolic bank-bashing messages, has been doing its best to reconfigure the Wharf into something not much more than a slightly interesting stop on the Docklands Light Railway.
Details aside, HSBC has displayed an amazing amount of discretion and strategic communication around the possibility of its move. Rather than play things out publicly in the general press, it has taken a rather high-level stance, allowing its senior management to carry the mail in official settings such as their annual meeting.
By stressing that politics won’t come into play in their deliberations over moving, the bank has taken the high ground. But by reminding everyone that the big question is whether or not the UK will remain an EU member, they’ve put a marker in front of the government that can’t be ignored.
All of this raises the question: what do banks want in their relationships with governments?
First and foremost, they like continuity – continuity in tax matters, regulatory matters, including provisions for bonus clawbacks and personal liability for their professional conduct.
In the UK, taxes are a challenging matter, because unlike the US or a lot of other developed countries, the UK implements fundamental changes in its tax strategy with each successive budget. That’s not necessarily a bad thing, unless it introduces additional financial and administrative burdens.
That happened in the recent UK budget: the bank levy was reduced from a charge on global to local assets, with the kicker that a tax surcharge would be applied to UK profits. Net/net, it’s a good outcome for a global bank like HSBC and a bad one for a UK bank such as Lloyds.
It’s in the regulatory realm where things get interesting. You might assume banks want to live in the land of lax and manageable regulators. But that’s not really the case. What banks want are regulators that truly understand their business – whether that’s on the lending or trading side of the house. Lax regulation in one jurisdiction only gets them in trouble in another, more aggressively regulated environment.
What hurts banks is when regulators who aren’t fully familiar with how they work start promulgating rules of the road that force banks to do things that don’t make commercial sense and ultimately don’t result in what the regulators were trying to achieve in the first place.
At the moment the Bank of England appears at least to be trying to fully understand the markets it patrols – something that hasn’t always been the case. For the banks, the departure of banker-bashing FCA head Martin Wheatley is another step in the right direction.
But playing cards across the table from any government is not to be taken lightly. It’s one thing when big investment banks start slashing and burning against each other on the financial pages; it’s quite another to go up against the ferocious might of the PR machines available to governments.
As HSBC continues its deliberations, we will see a game being played out: the bank will keep its powder dry, except for those rare occasions when it can hold forth in a stately, responsible manner. That doesn’t mean there isn’t a lot going on behind the scenes, it just means that HSBC – whether it stays or goes – doesn’t want to create a negative swirl in a landscape that is already overcrowded with whirlwinds.