Bank bosses asked to review cost of red tape

HSBC shareholders worried that harsher British regulation could hand its global rivals an edge
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Shareholders in Britain's biggest banks are pressing management to review the cost of government proposals for harsher regulation as fears of an exodus rise.

HSBC warned on Friday that its leading investors were asking about the bank's global competitiveness, despite strong third-quarter results.

The incoming chairman, Douglas Flint, said: "Shareholders are asking us to evaluate what regulatory changes are likely to cost and what impact they will have on our business model."

Stuart Gulliver, HSBC's head of investment banking and the next chief executive, said it had been unable to hire up to 15 bankers for its equity banking division in Hong Kong because of UK regulation. The Financial Services Authority bans two-year guaranteed bonuses to new hires – a standard practice in Hong Kong.

He feared it could lose staff in overseas offices such as Brazil and India if it could not compete with banks which were not bound by the same regulations. "We have experienced some people not joining us because they were not comfortable about whether we were in control of our own remuneration policies," he said. "In February and March next year we will see it really bite when this final bonus round goes through. We just want a level playing field."

Mr Gulliver warned that "there are some conclusions we may need to come to" regarding whether HSBC stays in London.

The bank said the calculations for Basel III capital requirements and the £2.5bn bank levy proposed by the Chancellor, George Osborne, needed to be clarified.

The warning came in the week that two government-backed banks, Lloyds and Royal Bank of Scotland (RBS), reported mixed results.

Lloyds, which surprised the market with the appointment of Santander's UK chief executive, Antonio Horta-Osorio, to succeed Eric Daniels, reported upbeat third-quarter earnings. It did not disclose specific figures but said it had strong underlying income growth and expected a modest improvement in the banking net interest margin – an important profitability indicator. Santander has promoted Ana Patricia Botin, the daughter of its chairman, Emilio Botin, to head Santander UK.

However, RBS dipped back into the red with a £1.15bn net loss after writing down the fall in value of its own debt and an £825m charge related to its involvement in the UK asset protection scheme. However, its bad debt charges fell 40 per cent in the third quarter compared to the same period last year and income from retail operations continued to grow.

One analyst said the theme of last week's third quarter was "clearly the paralysis faced by UK banks because of regulatory uncertainty".

Barclays will update the market on its third-quarter performance on Tuesday and is likely to ratchet up the pressure on regulators. The incoming Barclays group chief executive, Bob Diamond, speaking at the CBI conference two weeks ago, said: "Strong banks want strong regulation and no bank should ever receive taxpayers' money again but what we need is a consistent international framework."

Barclays' trading update will kick off an important week for some of the UK's biggest retailers with Marks & Spencer and Sainsbury's reporting first-half figures. Analysts expect Sainsbury's to improve its profit again but not as much as in the same period last year when they rose 18.5 per cent to £307m.

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