HSBC fired a shot across the Government's bows yesterday (Friday) by revealing that the weight of regulation imposed on Britain's biggest bank since the financial crisis may force it to move its headquarters abroad.
In a surprise announcement at its annual meeting, two weeks before the general election, HSBC's chairman, Douglas Flint, said it was launching a review into "where the best place is for HSBC to be headquartered in this new environment". Any move would be likely to take several years, be extremely expensive and force the company to reapply for hundreds of banking licences, but investors celebrated the announcement, with shares in the bank rising by more than 2pc.
Hong Kong, where HSBC was domiciled until it moved to the UK in 1993 and which is seen as the most likely destination should it exit London, welcomed the review.
"The Hong Kong Monetary Authority takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong," the regulator said.
HSBC has seen its reputation damaged by a series of fines, criminal investigations and misconduct allegations, but its loss would be a serious blow to the City. The bank is a significant employer and taxpayer, with almost 50,000 staff in the UK.
Successive increases in the bank levy, along with a dramatic shift in the regulation of lenders, have led to calls for HSBC, which makes most of its profits in Asia, to move its headquarters.
Sir Simon Robertson, the deputy chairman, said shareholders had often raised the issue in recent weeks, since the levy was increased at the last Budget, but that the review was "not a political issue at all". Mr Flint said they had decided to launch the review at this stage because the shape of regulation was becoming clearer.
HSBC used to review its UK domicile every three years, but put this on hold in 2010 as a wave of regulation crept over the industry.
"We are saying, if you had a plain piece of paper and a business of this shape and range where would you go?" Mr Flint said.
"There is more clarity about the final shape of regulation and the structural reform. The parameters are now much clearer than they were four years ago." While concerns over higher taxes and questions about Britain's continuing membership of the European Union were mentioned yesterday, the key driver behind HSBC's review is believed to be the introduction of rules that force British retail banks to be legally separated from their commercial and investment arms.
When HSBC's UK retail bank is fully ring-fenced, it may be sold or floated, leaving the rest of the bank with a much smaller presence and making it easier to move abroad.
Chirantan Barua, an analyst at Bernstein, estimated the cost of such a move to be $1.5bn (pounds 1bn). Standard Chartered is also believed to be considering a move abroad, and has been urged by high-profile investors to leave the UK.
At the annual meeting, HSBC bank faced a revolt over directors' pay, with a quarter of the shareholder base opposing the bank's remuneration report.
Rona Fairhead, the BBC Trust chief who has come under fire for not spotting tax evasion at HSBC's Swiss private bank during her time on the board, will step down as a director next year, Mr Flint said.