Bankers says HSBC spinoff of UK operations is a logical offshoot of ringfencing requirements

December 9
12:11 AM 2013

The idea of ringfencing or requiring big lenders to build special safeguards around their retail banking operations was first propagated by Sir John Vickers in his final Independent Commission on Banking report released two years ago, said a Financial Times report. The waves generated by his proposal has died down and Vickers has largely disappeared from the scene, but according to the report, the idea is making a comeback as the UK Banking Reform Bill is about to be passed through parliament. The Bill has enacted the recommendations of Vicker.

Bankers interviewed by the Financial Times said the news that HSBC is thinking of spinning out its operations in the UK is a logical move for them to be able to circumvent the ringfencing requirements. An executive who is knowledgeable about HSBC said, "Given the trouble you have to go to to establish a self-contained operation, with its own capital and governance, you might as well go the whole hog and spin it off."

According to the report, HSBC would not have such a complicated process of spinning off its subsidiary in the UK as compared to what other big lenders like Barclays or Royal Bank of Scotland would face. This is because HSBC, which dubs itself as "the world's local bank," has already established a structure where it operates as a string of country-based subsidiaries, the report said.

However, work would still need to be done. The UK subsidiary, HSBC Bank Plc, is much broader in nature than a ringfenced bank, the Financial Times said. For starters, it has investment banking operations that is not allowed in a ringfence. It also has some continental European businesses.

HSBC Bank generated a pretax profit of GBP 2.3 billion in the first half of the year, an estimated half of which came from operations that may fall within the ringfence. The report said this would point to a reconfigured floated bank, which is worth around GBP 20 billion or 10 times its earnings.

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