HSBC move shows Birmingham's appeal to banks

'HS2 is now part of our selling pitch'

Sir Albert Bore says the HS2 high speed rail link between London and Birmingham was a critical factor in wooing HSBC.

"HS2 is now part of our selling pitch", the leader of Birmingham city council says.

The city is "less than an hour's journey to London which was a very attractive proposition," for HSBC, he says.

The rail project is also the reason the city is seeing speculative office building for the first time in decades he maintains.

HSBC is the latest addition to Birmingham's banking and professional services sector.

The city last year announced that Deutsche Bank had expanded its presence with plans for a trading floor.

A number of international law firms have set up offices, including Hogan Lovell and Trowers & Hamlins.

The reasons for relocating from London are good schools and lower housing costs.

For companies setting up new operations, there are considerable savings. Wouter Schuitemaker, director of Marketing Birmingham, a council-funded body in charge of promoting investment, estimates Deutsche Bank saved on average 50 per cent of salary costs by recruiting locally.

With HS2 moving its headquarters to the city, there is also an opportunity to woo rail supply chain companies. Marketing Birmingham is also looking at automotive supply chain investments.

Mr Schuitemaker notes the renewed interest in Birmingham is pushing up property values, which have languished since the recession.

"That's also part of the calculation of these big companies like HSBC. There is an investment property angle. It's an additional reason that probably wasn't there two or three years ago that is making Birmingham even more attractive," says Mr Schuitemaker.

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HSBC is taking a 250-year lease on its building in Arena Central, a development on the site of the former ITV studios in central Birmingham.

John Murray Brown

By moving the head office of its UK ring-fenced bank to Birmingham, HSBC is going back home. The bank's domestic operations are largely built on its acquisition two decades ago of Midland Bank, which was founded in Britain's second-biggest city in 1836.

HSBC is not alone in having its domestic roots in Birmingham. Lloyds Banking Group can also trace its origins back to the West Midlands city where it was founded as Taylors & Lloyds 250 years ago.

All the biggest British banks are being forced by regulators to separate their UK units into ringfenced entities with separate funding and leadership from their other riskier activities. This raises the question of whether others may use this enforced separation as an opportunity to follow HSBC out of London.

Rival bankers, however, have so far been sniffy about HSBC's move. "Why would they do that - is it about cutting costs?" asked one rival.

Another banker questioned whether HSBC was trying to win political favour by putting more than 100 miles between its ringfenced UK entity and its skyscraper headquarters among the investment banking trading floors at London's Canary Wharf.

Lloyds, Barclays and Royal Bank of Scotland all indicated that while no decisions have been made on the subject, they were unlikely to move their ringfenced UK operations out of London. Unlike HSBC, both Lloyds and RBS plan to include as much of their operations within the ringfence, aiming for limited disruption.

HSBC, which already employs 5 per cent of its 48,000 UK staff in Birmingham, said in a memo to staff that, having considered a number of locations, it chose the UK's second city because of its historical roots there, good rail access and its strong financial services sector.

The bank said about 1,000 head office roles would move from London to Birmingham by 2019, when the ringfencing law comes into force. It is in talks to secure a lease on a 210,000 sq ft office to be built in the city's Arena Central enterprise zone.

Antonio Simoes, head of HSBC UK, told staff: "The city is going through a revitalisation that makes it an attractive destination for businesses and our people." He described the city as a "leading start-up hub, with 18,000 businesses created in the past year".

Neil Rami, chief executive of Marketing Birmingham, a promotional body involved in the talks with HSBC about relocating its UK operations, said: "This is a city that is growing faster than any other outside the capital."

"People are choosing to locate operations here in financial and professional services," he said. "Birmingham used to be a place in finance where you got a job and then moved on, but now you can build a career here."

Mr Rami cited as an example the recent expansion of Deutsche Bank's presence in Birmingham, where it now employs 1,500 - mostly in technology and support functions, but including some wealth management and investment banking functions. He said Hogan Lovells, the law firm, had recently opened a large office in the city, while both PwC and KPMG had their biggest offices outside London there.

Deutsche said the main reason for building up its Birmingham office was that it was a cost-effective way to serve its mid-market clients as it allowed the bank to "cover clients that would be uneconomical to service out of London". The German bank said the city offered a strong talent base and cheaper and more spacious housing, as well as very short commutes.

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Sir Albert Bore, the Labour peer and leader of Birmingham city council, said: "We are never going to be competing with the depth or international aspect of London as a financial centre, but it's about building a credible financial services and professional services sector, which is what we have been doing for the past 20 years and in that time this has been the fastest growing sector of the city's economy."

He said the arrival of the High Speed 2 railway line that promises to link Birmingham to London in under an hour was a big boost for attracting companies to the city. But he added that London's "overheated" commercial property market also helped the case for Birmingham.

"A developer can earn as high yields on a property here as in London because of lower property prices," said Sir Albert. "There will be other companies who want to come to Birmingham because of the development of the financial services sector. The future is bright."

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