What will Britain's General Election mean for the Banking industry?
Regulation of banking is tightening globally but with Britons about to head to the polls the issue is forming part of the election debate.
Banker-bashing is a popular vote winner on the stump, and the UK’s Tier 1 banks can expect to come under fire. The question is will it last beyond May 7th, or will the realpolitik of supporting the City stifle the anti-bank lobby?
Chancellor George Osborne, in his final Budget for the election, has already promised to raise the bank levy from 0.156% to 0.21%. Labour wants to go even further and raise an additional £800 million from the levy. The Liberal Democrats want an extra £1 billion. The SNP, which could form an alliance with Labour, are hardly about to vote down more taxes for banks.
Whether Downing Street is red or blue come May 8th, costs will rise in the banking sector.
The British Bankers' Association (BBA) is concerned, saying even the more modest Tory increase would "impose a significant cost on banking businesses in the UK".
BBA chief executive Anthony Browne said: "This [levy increase] will also further disadvantage UK headquartered banks by increasing tax on their overseas activities, while their competitors in those markets do not pay this tax at all."
Raising the levy has already had an impact. HSBC, Europe’s largest bank and the largest company on the FTSE 100 by market capitalisation, says it will consider moving out of London, possibly back to Hong Kong where it had been headquartered until 1993.
A former HSBC banker told The Times: “The UK has to realise that its actions have consequences and that you can’t just take billions out of a business and not expect it to do something about it.”
Needless to say, the Hong Kong Monetary Authority says it “takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong”.
While concerns about taxes matter, the biggest worry are new regulations forcing British retail banks to be legally separated from their commercial and investment arm.
Last year Ed Miliband warned banks would face a “day of reckoning” if he came to power, promising to smash the UK’s biggest lenders and force them to sell branches as part of tougher ring-fencing rules.
Credit Suisse reckons Labour’s higher bank levy would cost UK-based banks 2-5% of profits. Proposals to cap the largest banks’ share of current accounts could cost the big four between £767 million and £1.2 billion a year.
It all adds to a pretty grim outlook for banks whoever comes to power, but the Conservatives are seen as broadly more business friendly and supportive of the City. Mr Osborne has vigorously fought, unsuccessfully, against the European bonus cap, though at home the Treasury has increased the bank levy eight times since 2010.
Labour presents a less appealing offer were it to come to power. In addition to bank-specific policies, higher top rates of income tax, scrapping non-domicile status and controls on housing add up to a colder climate for the City. Rent controls, now being mooted by Labour, could force house prices down, hitting mortgage books.
As analysts at Bernstein were quoted in the Telegraph: "The elections do appear to be a 'lose-lose’ at this moment, significantly more so if a Labour coalition comes to power.”