HSBC gave the clearest warning yet that it might leave the UK because of new bonus rules as a fresh row erupted at state-backed Royal Bank of Scotland over potential payouts to its investment bankers.
As HSBC issued a trading update that warned of slowdown in Asia, it revealed it had failed to hire up to 15 bankers in Hong Kong because of a Financial Services Authority rule that prevents the bank offering two-year guaranteed bonuses.
"In a place like Hong Kong, Brazil, India we find it very hard now to compete against the American banks and the local banks because they're not subject to the same rules," said Stuart Gulliver, HSBC's current head of investment banking who will become chief executive next year.
RBS was also facing a storm over bonuses after it revealed that its salary, pension and bonus pot in its investment banking arm in the first nine months of the year was £2.1bn – compared with £2.2bn a year ago – even though revenue has dropped from £9bn to £6.3bn.
The compensation ratio – which measures how much is being accrued to pay staff relative to the amount of revenue generated – has risen to 34% from 25% a year ago. In the third quarter the ratio was 40% – higher than might have been expected and provoking an angry response from the thinktank Compass which urged the government to use its 84% stake in RBS to stop the payments.
Last year UK Financial Investments, which controls the taxpayer stake in the bank, could "veto" bonus payments at RBS. This year it has no such powers.
Gavin Hayes, general secretary of the Compass, said: "It proves that bankers' pay is not in any way linked to performance.
Lord Oakeshott, a Liberal Democrat treasury spokesman, concurred: "Nothing changes. It's head the investment bankers win and tails the taxpayer loses. It's a flexible one-way only bonus".
RBS insisted the £2.1bn was a sum that had been accrued and was not being paid out immediately. Stephen Hester, the RBS chief executive, said: "The final number will be determined at the end of the year. If the results are down so should pay be."
He urged the government to turn its £2.5bn a year bank levy in to a temporary tax, even though he understood that the levy was a necessary penalty on the financial sector. HSBC also warned about the impact of the levy which it refused to quantify while RBS said it would cost between £225m and £250m to pay the levy in 2011, rising to approximately £350m-£400m in 2012.
RBS fell back into a £1.4bn loss in the third quarter although Hester focussed on the operating line of the results which stripped out the £825m cost of insurance provided by the taxpayer through the asset protection scheme and an £856m charge associated with the value of its debt. This showed profit of £726m for the third quarter and a profit of £1.8bn for the nine months.
Shares in RBS were down 4% at 45p while HSBC was also lower, down 1% at 627p even though it said that third quarter pre-tax profit was "well ahead" of the same period last year.
HSBC's trading update was overshadowed by the management's comments on regulations. Finance director Douglas Flint, who is to become chairman next year, revealed that the bank would review its London headquarters next year and said shareholders had been asking the bank to evaluate the impact of new regulations.
"We're here. We want to be here," Flint said as he insisted the review was routinely conducted every three years. As chairman he will be based in London, while the bank's chief executive – currently Michael Geoghegan who will be leaving the bank after a boardroom scuffle in September – is based in Hong Kong. Geoghegan also expressed "concern" that the EU and the UK were going further than other countries in implementing regulatory changes to the way bonuses can be paid.
