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Hong Kong will welcome HSBC, Standard Chartered if they moved headquarters to city, minister says

Enoch Yiu enoch.yiu@scmp.com

HSBC and Standard Chartered Bank would be welcomed by the government, if they were to move their headquarters to Hong Kong, a senior minister said, adding that the city met international lenders' regulatory and business requirements.

"HSBC has always had a lot of operations in Asia and Hong Kong, while a substantial portion of its profitability also comes from the region. Likewise, Standard Chartered Bank also has a big exposure to Hong Kong and Asia. The regulations and business opportunities in Hong Kong are very good. We would welcome it " if HSBC or Standard Chartered Bank decide to relocate here," James Lau Yee-cheong, the city's Secretary for Financial Services and the Treasury, said in a recent interview.

Lau's comments come after the London-based lenders " also two of the city's three currency-issuing banks along with the Bank of China (Hong Kong) " said on Wednesday they would cancel dividend payments in the fourth quarter and in the first three quarters of 2020, at the behest of the United Kingdom's Prudential Regulation Authority, an arm of the Bank of England and their chief regulator. The cancellation is meant to allow them to reserve more funding for small and medium enterprises amid the Covid-19 pandemic.

This is the first time since 1946 that HSBC has cancelled its dividends. Last week, both banks suffered their biggest sell-off in a decade, while investors and brokers called for HSBC to move its headquarters back to Hong Kong to avoid the UK's regulatory requirements.

"We took a considered decision on domicile in 2016, and so far do not have plans to change this. Hong Kong is one of our two home markets and continues to be a major contributor to the group. We have confidence in the resilience of Hong Kong as a financial centre, and we are committed to supporting its continued growth and development," an HBSC spokeswoman said on Sunday.

Investors wipe billions off HSBC, StanChart's shares, call for HQs to move

The non-payment of dividends is the third time in the past two decades that Hong Kong has readied the red carpet for HSBC. There was speculation in 2008 that it would move back to the city for tax reasons; in 2015 for the spin-off of its UK retail business; and in 2016 because of the Brexit vote.

HSBC, which was founded in Hong Kong in 1865, moved its headquarters to London to fulfil a regulatory requirement to expand in the UK after it acquired Midland Bank in 1993.

Hong Kong, the "H" in HSBC, is the bank's biggest single geographical market. HSBC earned 49 per cent of its adjusted revenue from Asia last year, and about a third of its shares are held by retail investors, who depend on its dividends for income.

But, as a UK-domiciled bank, it felt it had to follow the BoE's call, as did several other UK banks, including Standard Chartered, Barclays, Royal Bank of Scotland and Lloyds Banking Group.

Meanwhile, the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, last week said it did not require local lenders to suspend dividend payments as the local banking sector was well capitalised.

"Hong Kong's financial markets will continue to benefit from the development of Greater Bay Area projects, which will bring in a lot of opportunities to international lenders," Lau said. "The current outbreak might lead to some slowdown, but it is not a financial crisis. The Hong Kong government has brought in many relief measures " and we will offer more " to help companies cope with the economic impact of the pandemic."

HSBC to cut costs by US$4.5 billion, slash 35,000 jobs in third overhaul in a decade

He pointed out that local banks' average capital adequacy ratio stood at 20.7 per cent at the end of last year, above the 8 per cent minimum requirement. He said Hong Kong lenders had already provided 9,000 small companies with HK$57 billion (US$7.3 billion) in loans under special relief programmes.

"HSBC should move its headquarters back to Hong Kong, so it can make the HKMA its primary regulator and does not need to scrap dividends. Local brokers and investors will continue to lobby the bank to relocate its base to Hong Kong and to reconsider its decision about dividend payments. It should at least consider paying the dividend in shares, so that it does not affect its cash flow," said Gordon Tsui, chairman of the Hong Kong Securities Association.

Standard Chartered, which has always been based in the UK, could not be reached for comment.

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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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