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HSBC Separates Retail Banking Unit to Complete Ring Fencing

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HSBC Holdings plc (HSBC - Free Report) has successfully completed ring-fencing, in sync with the U.K. government’s requirement. Consequently, its retail banking operations have been separated from the rest of the business and the entire U.K. business has been relocated to Birmingham.

Ring-fencing is the largest structural reform imposed on U.K. banks. It requires banks, with more than £25 billion in deposits, to separate their essential banking services from investment banking operations, effective Jan 1, 2019. This is to prevent a replay of the 2008 financial crisis when banks’ poor investment decisions put pressure on ordinary depositors, leading to big taxpayer-funded bailouts.

HSBC’s new ring-fenced arm – HSBC UK – is based in Birmingham. HSBC UK has already received the full banking license from the Bank of England’s Prudential Regulation Authority.

Notably, while this new banking arm will be wholly owned by the parent company, it has a separate board, which is led by the former London Stock Exchange chief executive, Dame Clara Furse.

HSBC UK has more than £200 billion in assets and nearly 22,000 staff members. In the process of creating this entity, HSBC had to separate nearly 250 computer systems from the rest of the group and transfer 400,000 customer accounts to new sort codes. In fact, the company has also rebranded all of its U.K. branches to HSBC UK.

Moreover, HSBC UK will now serve nearly 14.5 million retail and business customers in the U.K. This includes all retail customers of the company’s Marks and Spencer Bank, and First Direct branches.

Ian Stuart, the chief executive of HSBC UK stated, “We are delighted to complete the ringfencing of HSBC UK six months ahead of the legal deadline. The creation of our ringfenced bank and our move to Birmingham is a once in a lifetime opportunity to get closer to our customers, colleagues and communities across the UK.”

Apart from HSBC, two other major banks like Barclays PLC (BCS - Free Report) and The Royal Bank of Scotland Group plc (RBS - Free Report) have completed their ring-fencing requirements. However, Lloyds Banking Group (LYG - Free Report) is yet to finish ring-fencing.

Shares of HSBC have lost 1.5% in the past year compared with 6.3% decline for the industry.

Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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