Stuart Gulliver © Bloomberg

HSBC’s review into whether to move its headquarters out of the UK has absorbed many hours of boardroom debate, pushed the government to be less hostile to the City of London and cost £30m-£40m in advisers’ fees. But the end result fell flat with investors.

Shareholders were underwhelmed by the widely predicted outcome of the bank’s 10-month discussion. Shares in HSBC rose more than 1 per cent — underperforming the FTSE 100 index and the banking sector.

Stuart Gulliver, chief executive, said that a board meeting held in London on Sunday had focused on “a broad macroeconomic and geopolitical type of discussion” to decide the best home for the bank in the decades to come.

Ian Gordon, banking analyst at Investec, expressed his disappointment in a note entitled “HSBC Holdings: Bottle job?” that the bank passed up an opportunity to move to a country with lower tax and looser regulation. He bemoaned “the considerable financial benefits which may have accrued to HSBC’s shareholders had it decided to ‘escape’”.

The board’s unanimous decision to stay in the UK reflects both a recent thawing of relations between the UK government and the City, and a parallel decline in the attractiveness of Hong Kong as a potential home.

Mr Gulliver and Douglas Flint, chairman of HSBC, both stressed that short-term concerns about the volatility of the Chinese stock market and its economic outlook had no effect on its review.

However, there has been clear alarm about China’s interventionist approach. In particular, the detention of three Hong Kong booksellers has raised fears among western bankers that China is undermining the territory’s legal independence.

But Mr Gulliver said that this issue was not pivotal in its decision. “Those are very legitimate questions, but we have got that risk anyway — wherever we have the headquarters — because we have such a large operation in Hong Kong,” he said.

Some analysts had been concerned that HSBC would face a backlash from Hong Kong regulators, which had promised to welcome it with open arms.

Chirantan Barua, analyst at Bernstein, said: “For a bank that makes more than 50 per cent of its profits in Asia, most of it in Hong Kong, the decision to stay back in the UK will raise investor concerns around the sustainability of the supernatural profits that the bank enjoys in Hong Kong. That cosy relationship might end.”

HSBC was careful to avoid criticism of its most profitable market, saying in its statement on Monday that both London and Hong Kong were “world-class financial centres with high-quality regulatory regimes capable of hosting a global systemically important bank such as HSBC”.

The bank reaffirmed a commitment to its “pivot to Asia” strategy, designed to redeploy about a sixth of its $2.5tn balance sheet capacity into faster growing markets in Asia and the Pearl River Delta region of southern China in particular.

Mr Flint said the lack of a tax treaty between the US and Hong Kong went against New York as a potential location, because Asian investors that make up about a third of its shareholder base would have faced a withholding tax on dividends.

The chairman said an “important” factor in swinging the decision in London’s favour was last year’s announcement by the Treasury that it would recalibrate the bank levy, which penalises banks with big balance sheets and hit HSBC hardest. Instead, the chancellor introduced a supertax on UK bank profits that hits smaller challenger banks.

The bank levy is forecast to cost HSBC $1.5bn in 2015, up from about $1.1bn the previous year. But the tax changes announced last year by the government would boost HSBC net profits by 4-6 per cent by 2021, according to analysts at Citigroup.

Last year Mr Gulliver’s disenchantment with the UK deepened after he was called before a parliamentary committee to be grilled over his personal tax affairs as part of hearings into alleged tax avoidance by clients of the bank’s Swiss arm. But the shift in the political climate since a Conservative party victory in last year’s election has helped to brighten his view of Britain.

One benefit of the domicile review has been to deflect some attention from the bank’s declining performance. Shares in HSBC have fallen more than a quarter in the past year and the bank has been forced to abandon cost-cutting and profitability targets.

Mr Gulliver defended its performance by arguing that its shares had fallen less than most rivals so far this year. Although the domicile issue is now out of the way, investors are feeling nervous about the banking sector and he will face plenty of other questions when HSBC reports annual results next week.

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