Return of the Midland?

HSBC looks at the future of its British retail bank

ALMOST a quarter of a century ago, Willie Purves, who was then chairman of HSBC, announced the takeover of the Midland Bank. The Hong Kong-based giant had been strong-armed by the Bank of England into embarking on one of the biggest banking takeovers of the day and, as part of that deal, the regulators insisted it move its global headquarters to London.

As HSBC gears up for a testing shareholder meeting today, industry insiders are speculating that history is about to go into reverse: that the bank is heading back to Hong Kong, and that the old Midland Bank may make a comeback.

Some senior banking figures believe HSBC will over the next few years spin off its UK retail operations, either through a stock market float or a sale – a move that would echo the split of TSB from Lloyds Banking Group and the planned carve-out of Williams & Glyn from RBS.

The latter two splits were demanded by European Union regulators. If the Midland were to be spun off, it would be down to increasing disaffection with Britain’s tax and regulatory regimes.

All HSBC has officially said on the future of its UK retail business is that the ‘ring-fenced’ operations are to move to Birmingham, shifting around 1,000 jobs from London to the second city by 2017.

Observers believe the decamping is a precursor to spinning them out as a separate entity.

Given the Midland’s roots in Birmingham – its precursor was set up on Union Street in 1836 – the shift is also deeply symbolic.

The speculation comes at a time when there is already a question mark over whether HSBC will maintain its headquarters in this country.

This has become more and more uncomfortable because of the levy on bank balance sheets which falls disproportionately on HSBC.

The current cost is $1.1bn (£730m)– and that could rise by as much as 20pc due to an increase in the recent budget.

‘They are looking at whether or not to stay in the UK,’ said one leading investor. ‘If they quit, we would be left with a small bank in the UK that would be floated off by a huge Chinese bank.

‘It would be snapped up in a few months, by a predator.’

Weakening the ties with the UK would be a dramatic change for the bank, which sees Britain and Hong Kong as its two home markets.

‘There is a wider question about whether we want global banks to be domiciled in the UK. We should be pleased HSBC is here,’ said Nigel Wilson, the chief executive of Legal & General, an institutional investor.

But the head-scratching over its future comes as Stuart Gulliver, HSBC’s chief executive, is reappraising his vast global empire.

Gulliver, who will deliver a strategic update on June 9, is being forced to firefight disasters that have their roots in deals done by former chairman Sir John Bond in the Noughties.

These include acquisitions in Mexico, Switzerland and the US that ultimately produced huge sub-prime losses, fines for moneylaundering, plus an enormous tax scandal.

There is speculation that Gulliver may try to pull out of Brazil and Turkey, two of the biggest emerging markets in the world.

The bank is also under fire for its boardroom dysfunction, including criticism of Gulliver for his £7.6m rewards.

Rona Fairhead, who chairs the BBC Trust as well as being a longserving HSBC director, faces calls to quit. She has signed up for another year at HSBC, after which it is understood she will leave, but that is not soon enough for shareholder lobby group PIRC which is opposing her re-election.

PIRC is also against the re-election of chairman Douglas Flint.

Even Gulliver is not immune – shareholders are still backing him but unless performance picks up their patience will not be infinite.

Whatever the ultimate outcome, it is a harsh fall to earth for a bank that once seemed effortlessly superior to the pack.