Hong Kong would “absolutely” welcome London-based banks HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) if they decided to move headquarters to the former British territory, according to Chief Executive Donald Tsang.

“If HSBC or Standard Chartered were to change headquarters it would not undermine their business at all,” Tsang said in an interview yesterday. Tsang added he didn’t “want to encourage a move that would impair relations” with trading partners including London and New York.

The shift would mark a victory for Hong Kong, 14 years after the city’s return to Chinese sovereignty stoked concerns that its status as an international financial center would decline. China last month unveiled a package of measures to bolster Hong Kong’s role as a financial hub, while Europe’s debt crisis and the prospect of tougher regulations have increased pressure on banks from investors to weigh a move.

HSBC and its rivals “would seriously reconsider relocating when their shareholder interest and profitability is at risk because of new regulations,” Dominic Chan, an analyst at BNP Paribas SA in Hong Kong, said by telephone. Still, “unless something major happens, London will remain a major financial center for them to keep operating from,” he said.

Regulatory Cost
HSBC and Standard Chartered are among lenders required to comply with new British rules including building a firewall between their consumer and investment banking operations under plans published on Sept. 12 by the Independent Commission on Banking. The plans, which seek to shield customers and taxpayers from another financial crisis, will cost the industry as much 7 billion pounds ($11 billion), the report said.

Tim Baxter, a spokesman for Standard Chartered in London, said the bank would keep its domicile under review, though it had “no immediate plans” to change. HSBC will review its headquarters, as it does every three years, once the government has responded to the ICB’s proposals, a spokesman said.

Shares of HSBC climbed 0.7 percent to HK$61.80 in Hong Kong trading today, stemming its decline this year to about 23 percent. Standard Chartered rose 1 percent to HK$163.60.

HSBC and Standard Chartered, the two U.K. lenders dependent on Asia for a majority of their profit, faced calls from investors to consider moving after the U.K. government imposed a bank levy last year to raise 2.5 billion pounds from lenders. Shifting to Hong Kong would also allow the banks to sidestep any financial transaction tax imposed by the European Union.

U.K. Concessions ‘Key’

Concessions by the U.K. on the bank tax, such as applying it only to assets in Britain, would reduce the financial costs tied to being located in London, John Wadle, head of research on banking at Mirae Asset Securities (HK) Ltd., said in an interview.

“The key issue is the U.K. tax levy,” Wadle said. “If the U.K. concedes on that, there’s less of incentive to relocate.”

HSBC said in March that it prefers to keep its headquarters in London amid speculation the lender is preparing to relocate its headquarters to Asia. The 146-year-old bank, which traces its roots to the Hongkong and Shanghai Banking Corp., was required by British regulators to move to London from Hong Kong in 1992 following its acquisition of Midland Bank Plc as part of a push westward.

Pressure from Shareholders
HSBC is “being increasingly asked by shareholders and investors about the likely additional cost of being headquartered in the U.K.,” HSBC Chairman Douglas Flint and Chief Executive Officer Stuart Gulliver said in an e-mailed statement in March. Still, talk of “imminent change” was “entirely speculative and presumptuous,” they said.

Tsang, who was in London to promote Hong Kong as a financial center to British business leaders, was scheduled to meet Chancellor of the Exchequer George Osborne yesterday. China last month said it would allow more two-way investment in shares and relax restrictions on investment flows with Hong Kong to aid an economy that shrank in the second quarter for the first time since 2009.

Tsang said the ICB’s proposals in the U.K. were reminiscent of the Glass-Steagall Act of 1933, which separated commercial and investment banking.

‘Very Keen’
“Whatever the measures, you have to look at the viability and we are no longer in the 1930s,” he said. Banks’ decisions about where to set-up their headquarters “can be influenced by tax and regulation, but I do believe in the wisdom of the U.K. government in this regard.”

HSBC has been told by Hong Kong regulators that it would be welcome if it decided to leave Britain, City AM newspaper reported on Sept. 7, without saying where it got the information.

Britain’s proposals on insulating consumer banking units, may do more harm than good, Lloyd’s of London Chairman Peter Levene said in an interview.

“There are other countries that are very keen on financial services,” said Levene, who’s a founder of NBNK Investments Plc (NBNK), which is trying to start a British consumer bank. Banks could consider going to other centers including Singapore, Shanghai, and Hong Kong, he said.

‘Lack of Taxes’
With a top tax rate of 50 percent, London-based bankers making more than 1 million pounds will pay about three times more in tax and social security than colleagues in Hong Kong, accounting firm KPMG estimated last year.

“If you ask businesses why they choose Hong Kong over other places, our surveys show that almost all of them place taxes at the top of the list - or perhaps I should say a lack of taxes,” Tsang said in a speech at the Think Asia Think Hong Kong conference in London.

Hong Kong has a separate government and economy, a legacy of the Chinese region’s status as a British territory until 1997, though mainland authorities have since exercised powers to reinterpret local statutes. At the handover of sovereignty, China promised to preserve Hong Kong’s capitalist system and free press for a further 50 years.

Both HSBC and Standard Chartered are linked to the British colonial era. HSBC traces its roots to the Hongkong and Shanghai Banking Corp., founded in 1865 to finance trade in opium, silk and tea. Standard Chartered’s history dates to 19th century banks which helped finance British colonial trade in Africa and India.