Financial News

  • 6 December 2013, 10:29

HSBC Investor Fury At Osborne Bank Levy Hike

Leading investors in HSBC reacted angrily on Thursday to a decision by George Osborne to increase his levy on banks, warning that it would restrain the dividend-paying capacity of Europe's biggest lender.

Sky News has learnt that a number of the bank's institutional investors are furious at the Chancellor's move to hike both the rate and the overall sum raised by the levy, which was introduced in 2011.

A major HSBC shareholder, who refused to be named, said the Treasury was "pushing the bank to a point at which it will again have to consider the issue of redomiciling" its headquarters away from the UK.

Under plans announced as part of his Autumn Statement, Mr Osborne said the targeted yield from the levy on banks' balance sheets would increase from 2.5bn this year to 2.7bn next year and 2.9bn from 2015.

The latest increase - the fifth since the levy's introduction - was designed to offset the benefit to banks of ongoing reductions to the rate of corporation tax, Treasury insiders said.

However, the move is likely to force HSBC's contribution to the levy to more than $1bn (612m) for the first time next year, and take its overall bill since Mr Osborne unveiled it three years ago to more than 1.5bn, far more than any other bank.

HSBC, which did not require direct taxpayer support during the banking crisis, said earlier this year that it anticipated paying between $800m (490m) and $900m (551m) in 2013.

The investor questioned the logic of Mr Osborne's move, saying that because it was a levy on pre-tax profits, it inhibited HSBC's dividend-paying capacity.

"It makes no sense. HSBC's board could quite understandably take the view that the cost of being a UK-based bank has now reached a tipping point," they added.

HSBC periodically reviews the location of its headquarters but has not done so formally since before the Independent Commission on Banking made recommendations about ring-fencing structures aimed at safeguarding taxpayers from future bank rescues.

The Chancellor's levy has consistently failed to generate the targeted 2.5bn yield as banks have accelerated the deleveraging of their balance sheets.

Treasury officials said on Thursday that the structure of the bank levy would also be altered from January 1 2015, with changes limiting the protected deposit exclusion to insured amounts, and treating all derivative contracts as short-term.

The effect of this would be likely to mean higher charges for Wall Street banks with UK operations, according to one source.

HSBC declined to comment.