LONDON/HONG KONG As HSBC prepares to decide which country it should call home, a growing number of its investors want the bank to address a bigger question: what does it really want to be?
HSBC's board is due to meet later this month and is expected to discuss whether it should quit its UK headquarters and shift overseas, with Hong Kong seen as the most likely alternative.
But for investors, analysts and some HSBC executives, the real debate underlying this decision is whether it wants to continue to be a global corporate lending giant with a large investment banking and trading business or become a simpler, Asia-focused trading and retail bank.
If the former is the case, London - as a major financial trading centre with a favourable time zone - is the more obvious choice, some say. Otherwise it should abandon a country with one of the toughest regulatory regimes globally and return to Asia, where the bank was born more than 150 years ago.
Chief Executive Stuart Gulliver has already led a drive to slim down Europe's biggest bank, pulling it out of 78 countries or businesses since 2011. But concerns linger about high costs, lacklustre returns and how to adapt to a regulatory framework hostile to global banks.
"It is a bigger issue than just where to have the HQ," said one of HSBC's top-15 investors, speaking on condition of anonymity because of the sensitivity of the issue.
"Being a global bank has to have benefits for large corporate clients but that does not mean that HSBC has to offer all services to all clients in all areas."
An HSBC spokeswoman, commenting on the HQ issue and future strategy, referred to the bank's third-quarter results statement in November, when it said the domicile review would focus on long-term perspectives, as opposed to short-term factors.
"An announcement (on domicile) will be made when the board makes its final decision and if necessary a further update will be provided at the time of the full-year results announcement (in late February)," she said.
Last June, HSBC looked set to be opting for the narrower Asian option, when it unveiled its Asia "pivot" strategy - a plan to redeploy up to $230 billion in assets saved from cuts elsewhere to the region and the urban sprawl of China's Pearl River Delta in particular.
But seven months on, the region's markets and economy look anything but welcoming.
As Chinese growth has slowed, perceived missteps by the authorities have stoked concerns in global markets that Beijing might be losing its grip on economic policy.
China's benchmark Shanghai Shenzhen CSI 300 index has tumbled around 16 percent since the start of the year.
"They (HSBC) first need to decide what they want to be, then they can figure out which jurisdiction suits them best. If that business model is Asian, then fine, a move makes sense," said Barrington Pitt Miller, equity analyst at U.S. fund firm Janus Capital, who said the Chinese slowdown had raised a "big question mark" about the bank's business plan.
"But if you decide you want to be global, then I'm not sure the next two generations of senior non-Asian stakeholders – customers, capital providers, regulators and employees – will be ready to embrace that change of domicile."
A senior source inside HSBC said the turmoil in Chinese stock markets is viewed by Gulliver as a short-term issue and should not influence a "50-year" decision about its headquarters.
But if the company shifted base, the cost of raising capital from Europe and the United States through bonds may rise, say analysts.
"Should it play out that investors are more nervous around the name under a new non-UK domicile, then the bank might have to pay a bigger premium for the so-called increased risk of being a quote-unquote emerging market name," said Oliver Judd, a senior credit analyst at Aviva Investors, which owns HSBC bonds.
Meanwhile the senior HSBC source said plentiful liquidity for companies in Asia, and worse-than-expected economic performance in China and Southeast Asia, had made finding profitable lending opportunities difficult.
The slowing growth in particular could spell trouble for HSBC in China, potentially causing the bank's bad loan ratio in the country to more than double from 0.6 percent to 1.4 percent by the end of 2016, JPMorgan analysts wrote in a Jan. 6 note.
Ratings agency Moody's also warned of "considerable downside risk from a material slowdown in China".
Asia accounted for over 60 percent of the bank's pre-tax profits in the first nine months of 2015 and around 78 percent in 2014, according to the note published on Monday.
If HSBC opts to stick with London though, many of the issues that prompted it to announce its headquarters review last April will still be there, despite Britain largely scrapping a hefty levy on bank balance sheets.
London is an obvious choice if HSBC is to remain a "universal" bank that combines standard deposit-taking and lending with more sophisticated investment banking activity.
But Britain's tough ring-fencing regulation and the requirement for ever-thicker capital safety cushions mean the universal banking strategy is increasingly expensive for banks to pursue.
HSBC has responded by pulling back from some of its "non-core" activities but some investors say its board should go further, and pick a region to be champion in once and for all.
"HSBC is a collection of businesses which don't necessarily fit very well together, and the board will be under considerable pressure to start splitting them up if they don't do something more for shareholders sooner rather than later," said Ali Miremadi, a fund manager at THS Partners, another HSBC investor.
(Additional reporting by Simon Jessop and Jane Merriman; Editing by Rachel Armstrong and Pravin Char)