HSBC's 'review' is an attempt to bring the Government to heel

Outlook

Protestors demonstrate outside a testy HSBC annual general meeting in London (David Sandison)

HSBC’s shares were jumping like a grasshopper in spring in the wake of reports that it is considering spinning off the bank that brought it over to London in the first place.

That was the Midland, a predominantly retail bank which was all but rescued by HSBC, having been brought low by some duff deals.

Readers of a certain age may recall that prior to its takeover by HSBC, the Midland used to describe itself as the listening bank, which is something its parent hasn’t been very good at of late. Pouting and finger pointing have been more its thing.

The threats to pull its headquarters out of London are a case in point.

The chairman, Douglas Flint, said he had ordered a review as a result of “political and regulatory” changes while also warning about the risks of Britain quitting the EU. A spin-off of the Midland might or might not make moving – probably to Hong Kong – simpler to accomplish, not that “simple” is an appropriate adjective to use when discussing moving a bank with a balance sheet eclipsing the GDP of many countries in the world.

Moreover the revived Midland would presumably largely consist of the Birmingham headquartered ring-fenced bit – the UK retail and small business bank, with perhaps a few sweeties on top. It’s a business which would find favour with an awful lot of UK investors, given that it would be a low growth but low risk business with an attractive dividend.

What the market, and a lot of commentators, appear to have missed in all the excitement about this, is Mr Flint’s warning about the “complexity” of the decision. And that’s just making the decision. The actual process of effecting any change – whether that involves spinning off the Midland or just moving the headquarters – will tie the bank up in knots for years, taking up months of management time in the process.

Hence the theory that the discussion represents nothing so much as an elaborate bluff designed to bring the UK government to heel over the banking levy – which hits HSBC more than any other bank – and Europe.

In other words, all this isn’t so much about leaving home as it is about HSBC making its current home more comfortable for itself.

The problem is the market doesn’t see it that way. It doesn’t appear to be registering the downside, or the dangers, of a move. The shares’ reaction tells you that. An awful lot of investors just think that moving to Hong Kong equals low taxes, equals more for us.

In opening up its “review”, HSBC has therefore increased the pressure on itself to have that review decide to make a move, regardless of whether it is the right decision for the bank.

Mr Flint has gone and landed himself with a headache that could prove every bit as painful as the forthcoming prosecutions over its Swiss tax-planning services.

Wasps’ Joe Simpson breaks through the Exeter defence

Ignore the buzz about Wasps’ retail bond

The company that owns Wasps Rugby Club has created a bit of a buzz with its plans to raise up to £35m through a bond issue aimed at retail investors (you and me rather than City institutions).

Unlike the sort of retail “mini-bond” issued by organisations ranging from the Jockey Club to Rowan Gormley’s Naked Wines, what is on offer is a fully listed security that will be tradeable on the London Stock Exchange’s retail bond market.

What you’ll get is a 6.5 per cent return on your investment during the bond’s seven-year term, although if it all goes wrong you won’t get any help from the Financial Services Compensation Scheme.

In Wasps’ case it wasn’t so long ago that it very nearly did. Of course, the club’s prospects have brightened considerably since then, with the emergence of a big money backer and the club’s NFL-style decision to desert its Wycombe base in favour of a new home in Coventry.

Attendances have trebled and the ownership of the Ricoh Arena, upon which the bonds will be secured, has brought the club lots of juicy new revenue streams.

But here’s the thing: Wasps is only taking this step because the 6.5 per cent on offer is considerably less than what the company would have to pay a bank to borrow the same amount of money. Banks also tend to insist on onerous and irksome covenants. And it is highly debatable whether the premium rate of interest you’ll get is sufficient, given the risks.

If you’re prepared to accept the risks of a bond and are happy with a yield of just over 5 per cent, for example, you could get it through securities issued by big, established, and stock-market listed companies such as Icap or Ladbrokes.

The reason Wasps might still pull it off is because attractive yields are very hard to find. This has also helped to fuel the success of schemes backed by companies specialising in peer-to-peer lending.

The desperate search for yield has, however, resulted in scandals before. Remember split-capital investment trusts and their zero-dividend preference shares? Too many people have forgotten that the scandal essentially came from the same place. If some of the rates being offered look too good to be true, it is because they probably are. Wasps’ turnaround has been impressive. But most investors would still be best advised to buzz off to somewhere safer, even if that means accepting a rather more modest yield on their investment.