HSBC Lays Ground For Headquarters Move

October 27, 2015

NewsStandOnline.Net (27-October-2015): HSBC has begun shifting billions of dollars worth of derivatives trades from London to Hong Kong to take advantage of the SAR’s favorable funding and regulatory environment, and to help position itself for a potential relocation of its headquarters.

The move comes as a slew of regulatory changes brought in after the 2008 financial crisis makes it increasingly expensive for banks to trade derivatives in the United States and Europe.

Booking trades outside Britain would potentially help reduce HSBC’s exposure to the country’s bank levy, one of the sources said.

The British lender, which is exploring whether to relocate its headquarters back to Hong Kong, has begun moving interest rate swaps booked in Britain over to its SAR subsidiary, said three people with direct knowledge of HSBC’s trading books.

HSBC Lays Ground For Headquarters Move

Such swaps, which allow investors and firms to hedge their exposure to rate changes, comprise the bulk of the global over-the-counter derivatives market, with a notional value of around US$500 trillion (HK$3,900 trillion), according to the Bank for International Settlements. Large swaps dealers like HSBC typically hold hundreds of billions of dollars worth of such trades on their balance sheets.

Top banks typically hold the majority of Asia-related derivatives trades on their European balance sheets, with London being a major booking center.

For HSBC, moving such trades to Hong Kong is easier than for many other global lenders as it has a big standalone SAR-incorporated bank subsidiary that has low funding costs due to the bank’s large deposit base, two sources said.

Booking more trades in Asia also helps lay the groundwork for a relocation of the bank’s headquarters, both politically and operationally, the sources said. Its chief executive, Stuart Gulliver, has said the lender will “pivot” its strategy toward China and the Pearl River Delta.

“They also want to inflate the Hong Kong balance sheet so that if they decide to move their headquarters they can say to the regulators `well, look, we do as much business in Hong Kong as we do in London,”‘ one of these people said.