HSBC chief executive Noel Quinn says there is a risk of higher costs for banks and their clients if Brexit leads to a more fragmented European market.
The European Central Bank has been putting pressure on banks to move more staff and capital out of London to Europe. Some bank bosses are worried this will lead to duplicated roles and less efficient allocation of resources.
HSBC plans to move about 1,000 investment bankers from London to its office in Paris. While Quinn said he was confident the bank would not need to shift additional staff or assets, he added that any significant upheaval would bring extra expense for clients.
“There is the risk of fragmentation increasing costs, that is a reality. But that is something outside my control,” he said at the Financial Times’ Global Banking Summit on Thursday.
Bank executives, lawyers and supervisors recently told the FT that the ECB was becoming increasingly forceful in its demands that lenders move more resources to the continent to run their European businesses.
The push is partly linked to the ECB’s recent decision to end reprieves on moving staff and capital to the EU granted during the pandemic, as well as proposed new legislation that would make it harder for international banks to sell services into the bloc.
However, other temporary measures have been extended to avoid causing financial instability. The European Commission said last month it would prolong its temporary permit allowing European banks to access UK clearing facilities to avoid a “cliff edge” when the current one expires in June.
Quinn said: “I’m hopeful the temporary arrangements will become more permanent. I think there is some optimism on that, but we’ll have to wait and see.
“That’s not for me to make a judgment call on, that’s for politicians and regulators . . . But either way, we are positioned.”
Quinn, who has led HSBC since August 2019, must also contend with turbulent current relations between the US and China. As one of the last truly global lenders, with its most important and profitable market in Hong Kong, it has found itself stuck between the two sides.
This and ultra-low interest rates have weighed heavily on its share price, which has fallen 30 per cent since the start of 2020, wiping $47bn from its market value.
Quinn said HSBC had lost $6bn of revenue because of lower interest rates.
“My focus is driving revenues irrespective of interest rates.”
He said he expected a “slow and steady” increase in rates next year to balance keeping inflation under control, maintaining economic recovery and not dramatically increasing the costs of repaying government debt.
“We are a significant cash surplus organisation, we have a balance sheet of $1.7tn of customer deposits and $1.1tn of customer lending that at the moment is not earning hardly anything,” he said. “higher interest rates . . . will have a meaningful impact on the bank.”
HSBC has said that in the UK, a 0.25 percentage point increase in rates alone would add $500m of income per year.
The bank is in the middle of the biggest overhaul of its sprawling global operations in its 156-year history. It plans to trim $4.5bn in costs, cut 35,000 jobs and shift $100bn in risk-weighted assets to Asia, along with moves for several senior executives.
This year, it has sold its lossmaking US consumer operation and French retail bank and pledged to invest $6bn to expand its Asia wealth management business.