Will Brexit force banks to relocate their headquarters?

What effect does the Brexit vote has on these banks?

If HSBC and Standard Chartered had previously sealed the possibility of moving their headquarters out of London, then the recent shockwave from the Brexit vote – the United Kingdom’s referendum vote to leave the European Union (EU) – may have swung open those ironclad doors, according to some analysts.

“In February this year Douglas Flint, the chairman of HSBC, shot down the possibility of relocating the bank’s headquarters back to Hong Kong under the assumption that the United Kingdom (UK) would vote to remain in the EU in the June 2016 Brexit referendum,” recounts Arnie Cho, senior analyst at Verdict Financial.

“Additionally, Standard Chartered, another bank with a strong presence in Asia Pacific, had previously quelled rumors of its relocating away from the UK back in August 2015. However, with the result of the Brexit referendum, things may take a different direction,” he adds.

Cho reckons that HSBC and Standard Chartered might consider relocating their headquarters, especially if share prices fail to recover from the recent nosedive resulting from the Brexit vote.

But for Chua Han Teng, Asia analyst at BMI Research, the possibility of HSBC or Standard Chartered relocating their headquarters to Asia Pacific is “unlikely” despite both banks having a strong presence in the region as he expects London to show resilience.

“London is likely to remain a top tier global financial centre. The United Kingdom will continue to have one of the most competitive business environments in Europe, and indeed the world, despite the Brexit fallout,” says Chua.

Chua warns though that Brexit will likely act as an additional drag to the future profitability of HSBC and Standard Chartered, which are already limping due to the slowdown in China. This gloomy profit forecast comes despite the fact that Europe, including the UK, accounted for a smaller share of their assets and their operating income than their Asian operations in 2015.

There is also a question on whether the Brexit result will hurt not only UK banks but also Asia-Pacific (APAC) banks, but Fitch Ratings reckons that Brexit has no immediate direct ratings impact on APAC banks.

“Asian market reaction has been far more muted than in Europe,” according to the credit ratings agency, further noting that direct financial linkages are limited as well, and so the risks are more indirect with respect to Asia’s banking systems.

“Singapore and Hong Kong, as offshore financial centres, are more significantly exposed relative to the size of their economies, but these are mainly local and regional claims from UK subsidiaries and unlikely to see significant withdrawal as a result of Brexit,” says Fitch Ratings.