HSBC rethink on London is a sign of shift to the East

The news that HSBC is considering moving its headquarters out of London could turn out to be one of the pivotal moments of business history, a defining event in global financial terms.

If the bank goes through with the plan, it will be a reversal of the accepted wisdom of the banking industry over more than two decades, and a clear sign that the “tilt to the east” is a fact of life, in banking as in economics, trade and geopolitics.

Just pause for a moment to appreciate the historic irony in the situation. HSBC moved to London in 1992 when it bought the old British bank, Midland. A London move and listing was part and parcel of the deal, on which the regulators insisted, but there was equally a desire by HSBC executives to be part of the banking mainstream in London, the financial capital of Europe.

The same executives were also worried about Hong Kong, then destined to return to the dominion of the People’s Republic of China in a few years. China was seen as overbearing, politically unpredictable and economically underdeveloped.

Fast forward 23 years and there has been a complete 180 degree turn. The financial centres of London, and Europe, are run by authoritarian regulators and politicians for whom bank-bashing is a default position. From a UK perspective, there is a high degree of uncertainty about the European political set-up, and the continental economy is still – alone in the world – grappling with the legacy of the financial crisis.

Such a reversal was unthinkable in 1992; from the perspective of 2015, it looks inevitable. Two factors changed everything – the global financial crisis, and the irresistible rise of China as an economic power.

The first led directly to the new realities of western banking, where financial executives are facing with vindictive politicians pandering to mass prejudices about the industry. In this environment, regulators – the new “rock stars” of finance as they see themselves – rule supreme.

It is an environment in which the British government can impose on HSBC a levy of more than £1bn – which is as much as 25 per cent of the total amount being levied on the countries' banks. It is also an environment in which new rules on ring-fencing could lead to the forced sale of UK retail banking, the reason HSBC is in London in the first place.

HSBC has in many ways made a rod for its own back, self-confessedly engaging in all sorts of unscrupulous business practices that made it easier for the authorities to hit it with big fines. But the bank says it has turned over a new leaf, and you have to believe that. Running it out of town is not the answer.

In the circumstances, HSBC’s decision to think again about London is not so surprising. What’s more inexplicable is that others – Standard Chartered, Barclays for example – are not doing the same.

What does all this mean for the Middle East, and for the UAE? On the face of it, not very much. HSBC is extremely unlikely to choose Dubai (its regional HQ) as its new home. The regional market simply isn’t big enough, in comparison with Asia.

The HSBC business here will continue to be an important part of the bank’s global operations. The UAE is the fifth most profitable part of its worldwide franchise and will remain the centre of the multibillion dollar Middle East business.

But the UAE will inevitably benefit from any further shift to the east. HSBC and the UAE Government agree that the coming thing in global trade and finance is the “south-south” route, by which business flows to and from east Asia, via the Middle East and into Africa.

It means that the Dubai International Financial Centre is right in its strategy of looking eastward rather than west; it means that the nascent Abu Dhabi Global Market is also right to seek its models in Singapore and Hong Kong, rather than London and Geneva.

HSBC’s move, if it comes off, means that the Middle East will be more firmly situated at the centre of global finance.

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