HSBC to Move US Fund Unit to Dublin - Analyst Blog

On Thursday, The Wall Street Journal reported that HSBC Holdings Plc. (HBC) is planning to shift its US fund administration division to Ireland. The primary reason behind this move is to control costs and reorganize the company’s businesses.

HSBC’s plan to relocate its fund services operations to Dublin is expected to lead to retrenchment of nearly 200 employees in New York. However, the final decision regarding retrenchment of employees is likely to be taken over the next couple of quarters.

The fund administration unit is a part of HSBC’s Securities Services business and offers accounting and valuation services, corporate and statutory compliance, and fund transfers. Though the company will continue to provide services to a portion of its clients from Dublin, others have been advised to look for other fund administrators.

Moreover, this is a part of HSBC’s long-term strategy to bring down its operating expenses. Back in May 2011, the CEO of the company had announced plans to reduce the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of its global business.

Though US remain an important market for HSBC, this is not the first time that the company is revamping its operations here. Last year, the company had announced the sale of its 195 non-strategic branches to First Niagara Financial Group Inc. (FNFG) and its credit card business to Capital One Financial Corporation (COF).

HSBC’s decision to scale back its operations from the US stems from the fact that the company is facing tough regulatory and economic environment in this country. Following the financial crisis in 2008, various new regulations and low interest rates are affecting the profitability in the banking sector.

Additionally, as a result of low corporate-tax rate and proximity to Europe, Ireland is gradually becoming a preferred destination for many companies to set up businesses and expand the existing operations.

Further, HSBC is not new in Ireland. The company provides corporate banking, private banking, fund administration and insurance services through its 400 employees in that country. Therefore, we believe that HSBC’s plan to move its fund administration business to Dublin will benefit the company in the long run. The company will be able to gain market share in Ireland and this would further improve the company’s financials.

Currently, HSBC retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

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