HSBC yesterday made its most explicit threat yet that it is prepared to quit the UK if the Government adopts the Independent Commission on Banking's (ICB) proposed reforms in full.
Stuart Gulliver, HSBC's chief executive, said the bank's board would not decide on where to base its headquarters at the end of this month as planned and was prepared to wait until 2013 to weigh up legislation based on the ICB's report.
The big issue for HSBC is not the ICB's key recommendation to ring-fence retail and investment banking. Instead, the bank objects to a measure requiring it to raise extra debt capital as a buffer against losses.
Mr Gulliver said the proposal would punish HSBC's prudent balance sheet, which is more than fully funded by customer deposits. Raising $55bn (£35bn) in the market and parking the money in low-yielding government bonds would cost the bank more than $2bn a year, he said.
Asked if the bank would have no alternative to quitting the UK if the costs stayed the same, Mr Gulliver said: "We don't know whether the Government will implement the recommendations in the ICB report as currently configured, so we don't have enough facts to make the decision. We are also saying that the board is acutely aware of its fiduciary duty to its shareholders. We are trying to make those two [facts] quite separate but also somewhat linked."
Mr Gulliver also took a swipe at Bill Winters, the ex-JP Morgan banker who sat on the ICB. "You need to talk to Bill Winters and so on. It's very helpful if you're JP Morgan or you have JP Morgan's balance sheet or you have an asset-deposit ratio over 100, which in the UK is everyone but us and Standard Chartered."
HSBC and Standard Chartered are furious that the ICB's proposals penalise them for having more deposits than loans – which they say makes them more liquid and safe than other UK banks.
Barclays and Royal Bank of Scotland have accepted the ICB's reforms but Mr Gulliver has put the Government on notice that he wants a rethink on loss-absorbing debt.
HSBC moved to the UK less than 20 years ago from its historic base of Hong Kong when it bought Midland Bank. Some of its shareholders have urged it to return to escape UK regulation.
Mr Gulliver made his comments as he unveiled reduced quarterly profits and admitted he was now aiming for the low end of his financial targets.
HSBC's underlying pre-tax profits for the third quarter fell by a third to $3bn as the eurozone crisis hit investment banking revenues and bad debts from the disastrous Household acquisition in the US came back to haunt it.
Lloyd's hit with ratings alert as boss takes break
The beleaguered Lloyds Banking Group suffered a fresh blow yesterday when the ratings agency Moody's said it was considering cutting its rating on the company's debt as a result of the leave of absence taken by chief executive, Antonio Horta-Osorio.
An exhausted Mr Horta-Osorio was said by the bank to have taken the break "on medical advice" and is slated to return in a month or two. But Moody's said it feared that this could put at risk vital restructuring work as Lloyds battles to integrate HBOS, the rival bank it rescued at the cost of a multibillion-pound Government bailout. Such a move by Moody's would hike Lloyds' borrowing costs at a time when it is battling to raise wholesale funding.