LONDON HSBC (HSBA.L) played down a report on Monday that it was considering listing a third of its British retail and commercial banking arm in order to meet UK regulation and unlock value for shareholders.
The Financial Times on Monday said HSBC was considering selling 30 percent of its UK arm. It said the plan was at an early stage but the matter had been discussed with investors and informally at board level, citing three people familiar with the project.
HSBC declined to officially comment, but Antonio Simoes, the head of its UK bank, said in a message to staff: "We understand this could be unsettling for employees and want to confirm that this is speculation and nothing more."
The note reiterated that Hong Kong and Britain were HSBC's twin "home markets" and together typically account for 40-50 percent of annual profits. It said given recent "encouraging growth forecasts" for Britain "it would be unusual to consider a flotation of 30 percent of the business" when the bank would benefit more with its 100 percent ownership.
British banks will have to ring-fence their retail banking units from riskier investment banking under rules designed to come into force in 2019 to give more protection to depositors and taxpayers should any more bailouts be needed. A listing could be a logical move to meet that requirement, some analysts and bankers said.
Shares in the bank were down 0.2 percent 657.8 pence, underperforming a slightly firmer Europe banking index .SX7P.
HSBC is Europe's biggest bank with a market value of $200 billion and its UK arm is estimated to be worth about 20 billion pounds ($32.7 billion).
Analysts said spinning off the UK business could crystallize a higher valuation for the group, but it was unclear how big the regulatory or strategic benefits would be.
"This is a broader industry discussion and in the end this will depend on the final legislation, but at this stage we are unsure of the merits of such a move. In terms of time frame, it is still an extended and protracted process," said Amit Goel, analyst at Credit Suisse.
If HSBC listed its UK arm it would partially reverse its takeover of UK bank Midland more than 20 years ago, which resulted in it moving its stock market listing to London from Hong Kong.
There is frequent speculation the bank could move its headquarters back to Asia, and spinning off a separate UK listing may make that prospect more likely, analysts said.
HSBC, which is structured as a collection of country based subsidiaries, has been cleaning up its structure and selling minority holdings as part of a far reaching restructuring by Chief Executive Stuart Gulliver since the start of 2011.
Investors could be attracted by a new listing to rival Lloyds Banking Group (LLOY.L), which is currently seen as the only listed bank almost purely focused on UK banking.
But that space is set to get more crowded with other UK banks earmarked to list in the coming years, including TSB and Williams & Glyn's - which are respectively being spun out from Lloyds and Royal Bank of Scotland (RBS.L) - Santander UK (SAN.MC), Virgin Money and other smaller lenders. ($1 = 0.6115 British pounds)
(Additional reporting by Richa Naidu in Bangalore; editing by Sophie Walker)