Just last week UBS Chief Executive Oswald Grübel gave a good lashing to the government warning that banks are tired of being criticized and the regulations being forced on them may soon make them look to where regulations are less strict such as Hong Kong or the US.  Now HSBC has a warning that it could be moving if government does not step back on its regulations and levying higher taxes against banks.

Rumors have been swirling that a move is being considered to take it away from London.  Hong Kong would be the most likely location.  The bank was in Hong Kong almost 2 decades ago before moving to London.  Also HSBC’s chief executive’s main office is located in Hong Kong.

Should banks pull up their main base from London it would lower London’s power as a financial centre.  Jobs would be lost as would substantial taxes for the government.  This would definitely cut into the recovery and fix of the UK budget.  Last year HSBC alone paid £1.2billion in taxes.

The Bank of England’s Governor Mervyn King has been very vocal in stating that he believes banks should forego high paid cash bonuses and that banks care less of their customers than they should.  He has been calling on regulations to be strict on bonuses and considered splitting the banks investment arm apart from the retail banking division.  He believes that without change the banks will run into another financial crisis if they are allowed to revert to practices of the past.  Recently Mr. King gave an interview in which he criticized the bank’s concern of their customers and said: “If it’s possible to make money out of gullible or unsuspecting customers, that’s perfectly acceptable”.

Rumors started to rise that share holders are questioning whether HSBC should stay sit where they will be required to pay out a higher tax and deal with further regulation tightening.  It should be noted that HSBC did not require a taxpayer bailout to survive through the financial crisis.  Do to that they have been vocal about across the board criticism of banks and forced regulations.   However HSBC played down the reports that surfaced over the weekend of a move to Hong Kong.

A joint statement was released by both HSBC’s chief executive Stuart Gulliver and chairman Douglas Flint saying:  “Talk of imminent change in HSBC’s position on this matter is entirely speculative and presumptuous.

“London continues to be widely recognised as one of the world’s leading international financial centres, a position it has built over many decades through deliberate policy action. We have been very clear that it is our preference to remain headquartered here.”

“We are however, in light of possible regulatory changes and additional costs such as the bank levy, being increasingly asked by shareholders and investors about the likely additional cost of being headquartered in the UK.

“We are very clear that the City of London’s competitive position deserves protection and HSBC will play a full part in this; we are encouraged by the UK government’s recent commitments to do the same.”

HSBC and the Government have differed on opinion on the tax levy, with the bank saying the levy is unfair and penalizes those with large overseas operations.  It is estimated that HSBC’s profits are 90 per cent from outside of the UK.

The HM Treasury released a general statement aimed at all banks through a spokesman saying:  “While we are determined that the UK remains a world-leading financial centre, banks must pay their fair share of deficit reduction, which is why the government has introduced a permanent bank levy raising £2.5bn a year.”

Shareholders made statements to the Sunday Telegraph and one shareholder pointed out the bottom line effect with a move to Hong Kong saying:  “Instinctively we were very surprised by the change of tone. But you can’t argue with the numbers. Moving to Hong Kong could deliver a 30% premium [to the share price] overnight.”

As the country continues to recover from the most troubling recession in memory, UK banks plan on raking it in through 2011. The estimated profit is about 1 billion pounds per week, and collectively the top 5 UK lenders plan on earning over 51 billion pounds this year. On the flip side feelings of frustration continue to dominate the countryside, as citizens try to manage the new austerity measures handed to them by the UK government.

Earnings for the big banks are sure to prompt year-end bonuses over the next few weeks. Combine this with the deep spending cuts and the everyday Brit can’t help but throw up their hands and question the system. The one thing the citizens do have on their side is time, as each day that passes brings full recovery that much closer.

The upcoming bonus season might feel a little odd to some bankers. For example, Lloyds TSB chief executive, Eric Daniels, gave up part of his bonus pay within the last 2 years, under public scrutiny. But since profits in the banking sector, at least, have returned to normalcy, senior bank executives are feeling obligated again to enjoy the fruits of their labor.

The return to big profits by the banking sector has spurned new talks regarding levies on banks. One change taking affect already is a new charge banks will be handing to the government based on their outstanding loan amounts. It is expected the new charge will provide the government with about 2.5 billion pounds per year.

Chuka Umunna, a Labor member of the Treasury Select committee, believes the 2.5 billion pounds is microscopic compared with the 50 billion in profits the banks are bringing in, saying: “These profits lend credence to those who argue that the bank levy should be set at a higher rate.”

He added: “They can well afford to contribute more to the Exchequer to reduce the budget deficit.”

Lord Oakeshott remarked on the taxpayers bailing out RBS and Lloyds, saying: “Bankers working for RBS and Lloyds would not be in work if they had not been bailed out by the taxpayer.

“Taxpayers are entitled to know the size of the pay packages they are effectively signing off at the state-owned banks, just as they do for high-paid workers in the public service.”

The Center for Economics and Business Research has estimated the banking bonuses will increase approximately 25% by the year 2014. The profits being experienced are more than being welcomed by the banking industry. Since the crisis of 2008 unfolded, prosperous days were just something the sector hoped for. Now, it is more than just a goal, but a firm reality.

Even though the top lending banks, RBS, Lloyds, HSBC, and Barclays are enjoying a 40% increase over last year, smaller businesses are still scraping to get by. They continue in their efforts to obtain credit from the big banks without much luck.

Credit still remains tight, which prompted Lord Oakeshott to remark: “UK banks are still not doing the job they are meant to be doing, which is to support small- and medium-sized businesses and maintain the supply of -mortgages to homeowners.”

According to the Treasury Select Committee (TSC), the Chancellor, rather than the Bank of England should bear the weight of responsibility when it comes to overseeing banks during a financial crisis.  In a report published on Thursday in reference to regulation of financial institutions, the TSC said the Government must be in charge in times of crisis.  It also warned that the Government’s plans to make changes quickly are too ambitious and mistakes will be made.

The report stated: “Since rescuing the financial system may have significant effects on public finances, only a democratically-elected Government should make such decisions.”

“The Government has said that it wishes the legislation to be introduced in “mid-2011″ and to be completed by 2012.  The Committee is concerned about the risks involved in such an ambitious timetable.”

The TSC believes that one particular need before making changes is that the Government clarify what it considered to be “financial stability” when it comes to the Financial Policy Committee (FPC).  Without the clarification there are expected mistakes to be made that will have untold results.  The report stated: “The macro-prudential tools which the FPC is to use are as yet undefined and untested, and may have unexpected consequences.”

The report also called for the FPC to be made up of more external members.  By including more external members it is believed that there will be a better balance of regulators and practitioners with input.

It is considered by MPs that the Government’s shift in power to the Consumer Protection and Markets Agency to be the overall protector of consumers should be scrapped.  It is considered according to the report to be “inappropriate, confusing, and potentially dangerous”.  Instead there should be a balance between risk, costs, and restrictions and not a direct all coverage agency that is so one sighted.

Andrew Tyrie, chairman of the TSC, said it was “regrettable that the consultation paper said so little about costs”. He added: “More work is needed to find ways to establish the true cost of regulation and the Committee will be pushing the new regulator to ensure this is done.”

The report also noted the lack of other UK financial sectors being addressed when it came to reforms.  There seems to be too heavy of concentration on the banking sector.  There are other parts of the financial sector that can contribute to a financial crisis and those should be addressed as well without concentrating just on the part that recently broke the system.

“Inappropriate regulation of non-banking sectors could cause serious and unintended damage to companies within those sectors and to the UK more widely,” the report says.

The Government will be going ahead with the spinoff consumer watchdog organization dubbed the Consumer Protection and Markets Authority.  The group will be headed by Martin Wheatley.  He will be returning to the UK from a five year leadership of the Hong Kong Securities and Futures Commission.

The leader of the Union Bank of Switzerland (UBS) criticized the UK government for its neglect of the City of London and warned that tougher regulations on the Banking Industry will see Britain and the rest of Europe losing investment banking business to Asia and the US which have more favorable regulations.  The UBS leader went as far as saying that London may not be the right place for their business.

Oswald Grübel, was successful in leading the Swiss bank during the financial crisis from the brink of total collapse.  In an interview with the Financial Times he was open and candid as to his views and what is probably the views of other bankers.  Many are tired of the years of criticism of the banking industry by government heads and the threat of tearing apart the banks by dividing out the investment and retail divisions and the enactment of stricter regulations.

Mr. Grübel said: “The government is so quiet about [the City]. Only behind closed doors do they pay lip service to wanting to keep the City. If it is abandoned by the government one day, God help you.”

“Companies like us, who have 7,000 people in the City, have to make commitments, not from today to tomorrow, we have to make 15-year lease commitments. We would like to know where the City is going in the next few years.”

There have been other bank leaders that have voiced that stronger regulations against banks would likely lead to them pulling out of the UK.  Mr.Grübel criticized  the UK and Switzerland for their announcements to require stricter capital requirements.

“If in one part of the world you have an 8 per cent capital requirement, and in another part of the world a 19 per cent … you don’t have to threaten, you know where the business is going,” Mr. Grübel said.

The government has a difficult task in trying to balance the taxpayer’s expectations on one side and the bank’s financial goals on the other.  The bailout of banks and high banker’s bonuses has led to a poor image of the banking industry in the UK when lending has tightened to the point of concern by authorities.  The government has tried to establish policies that will not allow another banking crisis to occur like the last one.  In addition they have enacted heavy taxes on banks and pressured them to forego bonuses in favor of more lending.

Tax burdens on the banks increased to an additional 800 million pounds for this year and the European Union has limits that are the toughest in the world.  In the US there are less stringent rules and Asia is more relaxed as well and is considered the fastest growing banking market in the world.  The fact that banks would seek to move their base outside the UK would come as no surprise when leaders look to taking things back to the days of high profit and high bonus without the stricter regulations of today.

Grübel’s remarks are considered to be possibly damaging for the bank’s capital solutions and liability management division that is handling the issuing of CoCos, or contingent convertibles, which are being widely considered by banks to raise capital to meet heightened capital requirements under Basel III.  Analysts have valued that CoCos could reach upwards of  €700bn by 2018.  His remarks could push investors to consider CoCos with other banks such as Credit Suisse or Bank of Cyprus which announced they would be issuing CoCos worth over £1 billion next week.

The banking sector of the UK has not experienced this rate of growth in more than three years, according to the most recent industry survey.  One bank in every three is seeing increased business volume, and it couldn’t come at a more beneficial time.  Only 9 per cent of banks saw volumes taper off.  The survey was conducted by accountants PriceWaterhouseCoopers and the Confederation of British Industry (CBI).

Two of the popular High Street Banks seeing great success through the first half of the year are HSBC at seven billion pounds profit, and Barclays at four billion pounds in the black.

Ian McCafferty, the CBI’s chief economic advisor, commented on profit levels as well as growth.  He feels that even though profits continue to rise at an acceptable rate, growth within the sector is slower than what his expectations were.

He has concerns as the future unfolds, saying, with revamped banking regulations combined with a slow economy, the industry could suffer.

He expanded on his thoughts about the near future, saying: “There is ongoing concern that prospective regulation may hold back business expansion in the coming year.  But financial services firms have become more worried that weak levels of demand will dampen growth prospects.”

The UK banking leader of PriceWaterhouseCoopers, Andrew Gray, commented on how the success of the UK economy was the primary concern, saying: “While the banks are broadly in good shape, business is still constrained by the economic environment.”

Gray commented further on how important a good mix of products is important to being competitive, saying: “Competition is at the forefront of bank leaders’ minds and while new entrants do not rank as a high level threat, a renewed focus on product development and the marketing mix suggest a shake-up of market shares is anticipated.”

He continued to discuss avenues toward profitability, saying: “Concerns about demand are contributing to uncertainty with banks continuing to focus on cross-selling as a source of growth.  That said, costs and nonperforming loans are under control and profitability is expected to rise.”

As profit levels are up within the sector, so is optimism.  A significant number of firms are expecting profits to continue to rise, but reality will more than likely paint a different picture.

The financial sector is on quite a roll currently, as profitability is up a surprising fifth quarter in a row.

Despite banks seeing additional business and extreme cost cutting, profitability went unchanged over the last three months to September.  This has some industry experts scratching their collective heads, after three straight quarters of growth.

Gray mentioned that banks actually expected more growth than what really came to be.

Steve Davies, head of retail banking at PriceWaterhouseCoopers in Scotland, commented on the outlook of many banks, saying: “The trend of gradual improvement is welcome, although banks remain generally cautious, particularly in retail. The recent improvement in commercial business is still below what is considered normal, and pressures to raise net commercial lending are, if anything, increasing. Furthermore the outlook for the retail business suggests more head- winds in the overall recovery of consumer activity in the economy.”

The CBI survey also pointed out how banks are more concerned with marketing as the Government is set to increase competition.

What started out as talks to discuss bankers lending practices and bonus pay, quickly turned into the Vince Cable media circus. After all the dust cleared, sort of, George Osborne and others agreed to continue meetings on bankers pay and lending to businesses during the Christmas break.

Osborne and Cable met with bank bosses who had put together a plan to lend 200 billion pounds to businesses in the UK. The bankers present were John Varley, chief executive of Barclays, now exiting his post, and Douglas Flint, new chairman of HSBC.

To make certain small businesses benefitted from the funds made available, 70 billion pounds of it was earmarked for them.

Varley is the architect of the proposal, which in addition to the assurance of lending to UK businesses, includes a promise to apply restraints to bonuses. Although it has been promised, nothing concrete has been established.

As the bonus season begins, bankers find themselves once again under major scrutiny from the government.  Returning to the pre–2008 crisis days of a more relaxed relationship with the government is a goal for the banking sector.

Other major banks of the UK represented at the conference included Lloyds, Santander and Royal Bank of Scotland.

The majority of ministers felt the meetings were productive, even though nothing clear-cut was decided on.

What did get accomplished was Vince cable becoming the center of a media firestorm. He raised several eyebrows when he made the comment:  “I have declared war on Rupert Murdoch and his media empire.”

Cable approached the meeting eager to disclose more information on how the bankers are paid. He has been an active participant for years in scrutinizing the process of how the bankers derive their bonus plans. By making the process more public, he believes he can garner more support in placing limits on bankers bonus pay.  He remains critical of the bank pay process.

The government commented on the subject matter which was discussed, saying: “Bank lending – particularly to small and medium-sized businesses – and pay discipline, and how the banking industry can best support economic growth and job creation in the UK in 2011 and beyond.”

“The banks have put a number of proposals on the table. The government affirmed its desire to see a strong, responsibly and internationally competitive financial sector. The dialogue was constructive.”

“These proposals will be the subject of further discussions over the Christmas period with the aim of building a sustainable, co-operative relationship between the lenders and government in 2011 in support of the economic recovery.”

One idea, although unpopular, Cable brought up during the meeting, was imposing a tax on banks when they refrain from lending enough to businesses. Osborne has since given the idea little support.

Osborne commented on the bank levy, saying: “What we’ve demonstrated in the last couple of weeks is we are prepared to increase the rate of the bank levy in order to sustain the revenue.”

UK investors may take what is an unusual route in British courts and file a class action case in 2011 against the Royal Bank of Scotland (RBS).  While RBS has been defending itself in several such cases in the US where these types of court cases are more common, it is believed they will soon be facing the same defense in British courts.  According to news sources the likely lead barrister in a legal fight would be Andrew Onslow QC, a top financial services barrister located in London.  Mr. Onslow is described on his Web site as a specialist in international and domestic banking and professional negligence, especially credit crunch disputes.

The usual course of angry UK investors has been to join suit with others in class action suits in the US since those cases are fairly successful in American courts.  The roadblock in the UK lies with the Financial Services and Markets Act.  Investors are now having those in authority look into a possible case against the RBS despite the act due to massive loses occurring when the bank was nationalized which would be more likely if negligence were an issue in the losses.

Two of the investor groups that have begun to look into the possibility of recouping losses are the UK based North Yorkshire and Merseyside council pension fund groups.  The wife of former Prime Minister Tony Blair, Cherie Blair, has been appointed to pursue RBS for compensation on behalf of the two groups.

The bases of the suit will focus on the fact that RBS tapped investors for £12 billion pounds shortly before going forward to secure another £45 billion pounds in taxpayer bailout funds.  Further anger over the losses has occurred due to the payouts in bonuses to executives prior to and since the bailout.  While the banking community has tried to publicly justify the payouts and ease the outcry of foul, those experiencing losses during the economic downturn do not believe that the payouts were a good business measure and could be considered neglect in nature.

One financial expert in Britain commented: “In Britain, the legal case against RBS is difficult because the Financial Services and Market Act requires quite a high degree of ‘intent’ on the part of directors to bring down a company – mere negligence isn’t enough. There are some that believe the rights issue debacle might be enough to build a case on.”

RBS has been seeking approval to begin paying bonuses in the hopes of retaining key employees.  Sir Philip Hampton, Chairman of Royal Bank of Scotland admitted that last year the bank paid £1 million in bonuses to more than 100 bankers.  Government has been seeking more disclosure of bonuses paid in light of analysts reporting a decline in lending in an economy when small businesses and individuals are in need of financial lending.

Vince Cable stated in an interview with the Sunday Times earlier this month that “”We’ve got to have disclosure rules; start shining light on what’s actually going on at the top of the leading institutions. If you keep people in the dark, you grow poisonous fungus.

“The banks shouldn’t underestimate our determination to act. They are deluding themselves, really seriously deluding themselves, if they believe the government is not going to take this seriously.”

It seems investors with financial losses as a result of RBS have decided to take it seriously as well.

The Financial Services Authority required in August that banks publish their customer complaint data on their websites.  In July a new bank, Metro Bank, opened as the first new banking business in 100 years in London and met its goals for the first year in only 5 weeks concentrating on customer service.  Ulster Bank conducted an extensive study of what customers want in their banks and has announced new commitments to meet those needs.  Banking in the UK may well be taking a turn to be more concentrated on customer service due to the success of Metro Bank as well as the public scrutiny of customer complaint data.

Ulster Bank is one of the banks that has announced a new commitment to its customers.  Among the things that Ulster has announced are improvements to their ATM machines, the Saturday opening hours of 10 AM to 1 PM, and free text messaging when an account is about to go into the negative.  They will allow their customer commitment program to be monitored for compliance and progress by Deloitte.  The report by Deloitte will then be published for public view on their website.

Mike Bamber, Ulster Bank’s chief executive of retail markets, remarked: “Customer needs have changed and we have had to react to that. If customers do not notice a difference by the end of the year – then we will have failed and that has to be the acid test.

“We have to move on and get back to basics, and start meeting our customer’s needs more than we have met them in the past.

“Through extensive research carried out by the bank, we’ve listened to thousands of consumers, taken on board their suggestions and responded with these commitments which we hope will begin to address many banking concerns.

“We’ll use Deloitte to review how well we’re fulfilling our commitments or, equally, where we need to do more. We will continue to listen to our customers who will ultimately judge us on our performance and we will be open and honest about this feedback.”

In reference to the commitment for operating hours on Saturday, Mr. Bamber commented: “We will have more branches across the island of Ireland open on a Saturday than any other bank and we will be offering a full service.

“A total of 600 staff have volunteered to work on Saturdays – and we have recruited an additional 80 staff around this.’’

Ulster will also allow a customer the choice when calling whether they want left in the phone system or they want to speak to a live person as long as the call is made during opening hours.  If a customer follows the bank’s security requirements should they become a victim of fraud all losses will be refunded.  The bank is planning to offer debt counseling concerning their own loans with customers.  A bank statement said: “We will continue to lend you money responsibly; however, if you do get into problems with debt we’ll help you to make realistic plans for dealing with it.”

Julie McCurley, Head of Money Affairs at the Consumer Council, said that Ulster’s announcement was good news for customers.  She commented: “Consumers have been telling us that they want clearer communication from their banks and to be treated fairly.

“The Consumer Council welcomes the fact that Ulster Bank has engaged with its customers and listened to what they want before putting these new commitments together.

“The Consumer Council and customers will be able to measure whether Ulster Bank has achieved these commitments or not and will review and challenge their progress when the results are published.”

Britons are having to dip into their savings to meet day to day expenditures.  Schroders Investment Management Ltd. (SIM) released new data showing that 31 per cent of Britons have had to dip into their savings accounts and investments.  The amount taken from savings to meet living costs has averaged 4,600 pounds totaling an astounding 60 billion pounds.

Experts believe that low savings interest rates can be partially to blame.  When considering the loss of interest income people don’t have a lot of incentive to leave the funds in place.

Families are finding it had to make ends meet.  The question is how many will reach major hardship when the funds run out.  Many older Britons at pre-retirement age are having to dip into their retirement savings which will be detrimental in the years down the road.  Increasing fuel and food prices are pushing family’s budgets to the limit and many have no other choice than to withdraw savings.

Robin Stoakley, managing director of Schroders Investment Management Ltd, said: “At the end of the day people can manage their savings better and their expenditure but the size of this shortfall per person would indicate to me this is a fundamental problem.”

Of those aged 55 to 64 years of age a reported 36 per cent are relying on investment or savings withdraws to boost their income for the past year.  This has many analyst concerned about what will happen when those same people reach retirement age.

“The amount of capital being drawn down suggests that it is not just rainy-day funds that are being drained, but a significant proportion of individuals’ long-term savings,” says Robin Stoakley of Schroders.

”This is particularly an issue for those nearing or in retirement as they have less opportunity to rebuild their savings and declining annuity income proves insufficient to cover their day to day expenditure,” he adds.

Of course the government wants to extend the age at which pensions are accessible and make retirement higher than the traditional age 65, so options of staying in the work field may be more of an option for those using their savings right now.

Jasmine Birtles from moneymagpie said: “I think people in their 50s and 60s are so much healthier and stronger and are living longer.  I urge them all to have a look at their own earning potential which is much higher than they may realise.  We’ve seen a lot recently about people in their 50s and 60s being put on the scrap heap, being made redundant, but I say to them to set up your own business and make use of your skills.”

The rising cost of living will not see any relief soon.  Inflation is expected to possibly see a slight rise when the government’s budget cuts take place.  Mervyn King, the Bank of England governor, has warned that the economy will see slow growth and that full recovery is a long way off.  With that said, how long will savings last those relying heavily on it to help with living costs.  In the past years Britons were not especially big savings depositors.

The Bank of England’s Monetary Policy Committee (MPC) has again left the rate at its historic low of 0.5% in its January Meeting.  Until the minutes of the meeting are released we will not know how close it was to actually being changed.  Savers have been hoping for a change in the rate as they have been experiencing returns on deposit that have been less than generous when compared to past year’s deposit returns before the economic crisis.

Inflation has been forcing the talk of a rate increase and forcing pressure on the MPC.  They have demonstrated though that they are not going to react to rising inflation quickly.  The increase in VAT and government spending cuts have yet to be fully realized and an increase to the rate could come too soon and put recovery at a standstill or worse yet into reverse.  So while an increase is being called for by some economists and forecasted for the future by others, it doesn’t appear that savers will be benefitting from a surprisingly high interest rate right out of the gate.

If there is a rate increase in the standard base rate, it will likely be a small change in the start.  The economy will be shifting and groaning from weights pressing on it from other directions, the rate change will merely be one more factor at play.  So, a saver should not be waiting out for a huge increase to make everything all right with their savings investment.  Instead they should be considering the future and what directions they should take with their savings accounts now that will allow the greatest return when increases occur.

A change to a new type of account may be the best bet, in fact shopping around to move your savings account might even be an order of good business practice when it comes to savings.  The type of account one chooses should be one that will allow bigger rewards if indeed the rate increases steadily over the years to come.  Therefore, long term accounts might not be the best bet, but rather short term accounts that do not lock you into lower interest rates.

Danny Cox, a financial adviser with Hargreaves Lansdown, says: “Savers shouldn’t tie up their cash for more than a year, as there is a strong likelihood of rates rising during that time.

“With a longer-term bond, the danger is that you’re suddenly tied to a low rate where, in five year’s time, interest rates could be up near 8% for all we know.”

Michelle Slade, savings expert at Moneyfacts.co.uk, says: “Once base rate does start to increase, providers may opt to only pass on part of the increase to savers in an attempt to claw back their margins.”

Andrew Hagger, of Moneynet.co.uk, suggests that savers split their deposits between slightly longer-term fixed rates and shorter term or instant access accounts. This way, the deposits allow a boost in overall rate of return while still allowing savers the ability to take advantage of a hike in the base rate.

There are not any savings rates currently found that are above the rate of inflation, but there are some good short term deals that will be good choices should the rate increase bit by bit over time.  What is important is that savers choose accounts that do allow the ability to benefit from increases versus losing out on returns due to being locked in to deals that were good presently.  It is all about preparing for what may come ahead and being ready in this economy and that advice is the same for savers as well.