HSBC – Britain’s local bank?

So what’s the upshot of yesterday’s Vickers review into banking? A research note issued today by UBS puts it bluntly: Lloyds to do better, Barclays to shrink and HSBC to quit Britain entirely. The UBS note, written by Alastair Ryan and John-Paul Crutchley, points out that HSBC took not a penny of bailout money. It was able to cushion its own fall – so why hang around and let British regulators hack off its investment banking division?

“HSBC required no state support during the recent crisis, either explicitly through capital or implicitly through liquidity or funding support,” says the note. “This is forgotten in official UK thinking about what happened and what to do about it. We believe the company’s confidence in the stability, predictability and proportionality of UK regulation and taxation has been fundamentally shaken in recent months.”

HSBC, it says, was already given a “shock” when George Osborne’s recent balance sheet levy taxed HSBC’s entire global balance sheet as a result of being headquartered in the UK. For HSBC, the clue is in the name. Its fortunes are being made in Hong Kong and Shanghai: indeed, it had already looked like it was minded to move its headquarters to Asia before Vickers came along brandishing his medicine to a disease that HSBC didn’t contract.

Osborne may well sympathise with HSBC. But politically, he is in a bind. The public is just not in the mood to buy the ‘poor bankers’ line at the moment, and has taken to tarring all City people with the same brush. Nor is it at all sure that HSBC will relocate; one could argue that if it had really wanted to, it would have done so already.

What the UBS note does do is highlight that the Vickers review does not always recommend the right remedy for the right ill. With regard to Barclays, for instance, UBS notes that the bank does not show up at all on the Independent Commission on Banking’s analysis of losses as a proportion of risk-weighted assets during the financial crisis. “This is because it didn’t lose money,” says UBS. “This perhaps inconvenient fact does not seem to have distracted the ICB from policy recommendations that fall directly on Barclays’ business model.”

Policymakers are in a mood to punish banks. For some time, the banks have warned that they’d up sticks if the punishment was too harsh. Pretty soon, we’ll see who really means it.