HSBC has marketed itself to its customers as the “world’s local bank”, priding itself on providing financial services and products that are uniquely tailored to the needs of individuals no matter what country or culture they are part of. It is a strategy that has served the bank well for many years, mainly because it has made many inroads and opened up operations all over the world, particularly in emerging market countries.

For some time now, HSBC has been one of Europe’s biggest banks in terms of market capitalisation, and it has built up a massive presence in over 80 countries around the world. But since the financial crisis, it has seen its profits fall dramatically, with the bank dubbing 2014 a “challenging year” after it reported a 17 percent drop in profits to $18.7bn (see Fig. 1).

On top of last year’s poor performance, the bank has also been forced to pay out billions in penalties for its involvement in a massive money laundering and tax evasion scandal. The string of scandals participated in by HSBC and others, has helped weaken public trust in banks, with the latest Trust Barometer survey, from Edelman, showing that only 36 percent of the UK public trust them.

All of this has prompted the bank to consider a new business model, one that will see the organisation restricting its once rampant expansion into new markets, in favour of a plan that will involve it downsizing and simplifying its operations.

The move suggests many things, mainly that the strict regulatory environment and the cost of compliance is weighing the company down. But it also indicates the heavy toll that recent scandals have had, and the shift in culture, not just for HSBC, but also for the entire UK banking sector.

Leaving London
Not only is HSBC taking drastic action with its new business plan, but it has also expressed a willingness to move its headquarters out of London – where it was originally founded back in 1991.

At HSBC’s Annual General Meeting, Group Chairman Douglas Flint explained how it was essential that the bank position itself in the best way possible, in order to support the markets and customer bases, which are going to be critical to its future success.

“In this regard, we also have to take fully into account the repositioning of our industry being driven by the regulatory and structural reforms which have been put in place post crisis”, said Flint. “As I said at our informal meeting in Hong Kong on Monday, we are beginning to see the final shape of regulation and of structural reform, including the requirement to ring fence in the UK.

“As part of the broader strategic review taking place, the Board has therefore now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment”, he added.

“The question is a complex one and it is too soon to say how long this will take or what the conclusion will be; but the work is underway.”

This bombshell has led to many commentators wondering which country, and which city, the bank will decide to call home, now that it is leaving London behind. But most industry insiders, including Chirantan Barua, a senior analyst at Bernstein Research, have placed their money firmly on the bank returning to its namesake, Hong Kong. “It’s a no brainer, it has to be Hong Kong”, Barua told BBC News. “The Hong Kong regulator leads the world in macro prudential (economy-wide) regulation… what the Bank of England has rolled out in UK mortgages is a leaf out of the HK rule book.” But there are plenty of other reasons, besides a shared name, for the bank to call Hong Kong home.

For starters, moving its HQ to Hong Kong would be a popular move among the bank’s shareholders, mainly because it would pay a lot less tax. The UK government’s decision to impose a bank tax (bank levy), has been a very unpopular one since it was introduced back in 2010 and, according to the international specialist banking and asset management group, Investec, HSBC could see its tax bill in the UK slashed by as much as two-thirds should it make the journey to Asia.

If that were to happen, and HSBC decide that they are more than happy to turn their back on the capital, London will certainly miss its charm. Not only will the treasury lose out on all those billions in tax revenue, but the square mile will lose one of the biggest players.

Hong Kong will also decrease the bank’s regulatory burden, which is sucking huge amounts of money out of HSBC, as a result of the heavy price that complying with all that regulation generates. Hong Kong has also not wasted any time in making HSBC aware of its more business friendly policies, with the Hong Kong Monetary Authority (HKMA) releasing a statement explaining that the move would be a “positive development”.

“HSBC is the largest bank in Hong Kong and has deep historical links with Hong Kong”, it said in a statement.

But probably the best reason for packing its bags and saying farewell to London has to be the simple fact that people in Hong Kong still have something nice to say about the bank. Over there it has the ability to make a fresh start as just another bank, and can finally get away from all the media attention that has plagued it in recent years, as a result of the part it has played in numerous high-profile scandals.

Probably the best contrast about the difference in how HSBC is viewed by the two cities, has to be how the British media and public berated the bank for the part it played in the Swiss banking debacle, while in Asia, Hongkongers stood in line waiting for the chance to get their hands on a HKD150 banknote that celebrated the organisation’s anniversary.

Culture shift
In the UK, the banking sector has been under immense pressure. And, according to a report on the culture of British retail banking, commissioned by the New City Agenda, there have been calls for the banking sector to become more competitive, provide better products and solutions for customers, and a drive to more ethical decision making and improved employee satisfaction.

While the report contends that there has been a marked improvement by the banks to meet these demands, there is still a lot more to be done. But there is some solace to be taken from the fact that HSBC and other British banks are working hard to take the necessary steps.

“Every major bank we talked to not only acknowledged the toxicity of previous working cultures, but had programmes in place to ensure their business treated customers fairly”, writes Lord Sharkey. “Encouragingly, we also found among challenger banks a real willingness to avoid the kind of mistakes made by their more established competitors; a desire which was often reflected in their policies, controls, and structures.

“Secondly, it is equally clear that this journey towards a healthier culture is nowhere near complete. A toxic culture decades in the making will take a generation to clean up. Some frontline staff told us they still feel under significant pressure to sell. Complaints continue to rise and trust remains extremely low. Most of the people we talked to believed that real change, and as a consequence the better treatment of customers, will take some time to achieve.”

Reputation recovery
Since the outbreak of the financial crisis, HSBC and other British banks have been embroiled in a number of high profile scandals that have only helped its image in the UK sink to new depths. Arguably the most damaging for HSBC was the role the high street banking giant played in the Swiss tax avoidance scandal, which prompted the bank to take out adverts in British Sunday newspapers in an attempt to apologise for its part in the incident.

“Their reputations are in tatters”, Pat Southwell, Director of Strategy and Head of Crisis Communications at Berkeley PR told PR Week. “Bankers are widely disliked and distrusted. Rightly or wrongly, they represent an ethically dubious elite who are seen to act above the law at worst, or can negotiate the law at best.”

To make matters worse for the bank, the FSA has announced a number of probes designed to examine the state of the banking industry, in an attempt to foster a more competitive culture, so to allow smaller institutions’ access to a fairer playing field.

That is why, for many outsiders looking in, the decision by HSBC to downsize operations and set up shop elsewhere has become evermore understandable. According to a report by the Financial Times, the bank is looking to withdraw its retail banking operations from a number of emerging markets, such as Brazil and Turkey. It even reported that the bank was flirting with the idea of downsizing its involvement in the US and Mexico, along with massive cuts to its investment division, which has been part of its core business for years.