Money-laundering probe mars HSBC earnings

Bank has set aside $1.5 bn for potential fines and settlements Q3 net profit falls to $2.8 bn against last year's $5.5 bn

HSBC Holdings on Monday said it had set aside a combined $1.1 billion connected to a continuing money-laundering investigation and a settlement over selling inappropriate financial products, as the British bank said it may face criminal charges in the United States.

The bank, based in London, said it had made a further $800 million provision to cover potential fines, settlements and other expenses related to a money laundering inquiry in the United States and said it continued to negotiate with American authorities. HSBC has now earmarked a combined $1.5 billion for expenses related to the case. The figure does not include legal costs.

A United States government report released this year accused HSBC of helping clients to illegally bring money linked to drug trafficking activities — and from West Asian banks with ties to terrorists — into the United States.

The British bank Standard Chartered already has agreed to a $340 million settlement with New York State's top banking regulator after authorities claimed the bank had moved hundreds of billions of dollars in tainted money and lied to regulators.

"We deeply regret what took place took place in the United States and Mexico," HSBC's chief executive, Stuart T Gulliver, told reporters on a conference call on Monday. "A number of people have left the bank and have had clawbacks against their compensation."

The bank added that a resolution to the matter would probably include corporate criminal and civil charges, as well as large fines against the bank. HSBC said some of the charges could be offset through a potential settlement agreement. The firm did not say when a settlement with American authorities would be announced.

A number of British banks have recently announced new legal problems.

Last week, the Federal Energy Regulatory Commission recommended a $470 million fine against Barclays in connection to past energy trading activity in the firm's North American operations. Barclays, which has 30 days to respond to the commission, has said it would defend itself against the inquiry. The British bank agreed to a $450 million in June to settle charges that it had tried to manipulate a key benchmark, the London interbank offered rate, or Libor.

HSBC's new provisions related to the money laundering case and an additional $353 million set aside to compensate British customers who were inappropriately sold payment protection insurance weighed on the bank's third-quarter results.

The bank said net profit in the three months ended September 30 fell to $2.8 billion compared to $5.5 billion in the third quarter of last year. HSBC also said it had incurred a quarterly charge of $1.7 billion on the value of its own debt.

Excluding the adjustments, the bank said pretax profit in the third quarter more than doubled, to $5 billion. That figure was slightly below many analysts' estimates.

Shares in HSBC fell 1.5 per cent in afternoon trading in London on Monday.

As part of a restructuring plan, HSBC has been selling assets in countries where it does not have the scale to compete. The sales include HSBC's general insurance businesses in Asia and Latin America, as well as its units in Costa Rica, El Salvador and Honduras.

In total, the British firm said it had cut staff numbers by around 10 per cent, to 266,700 employees, since the beginning of 2011. Around 15,000 positions were eliminated as HSBC sold off assets, and the bank's chief executive said he expected further job cuts as the bank continued to restructure its operations.

The bank said it had reduced costs by $500 million during the quarter, and expected to save up to $3.5 billion by the end of next year.

Despite the weak global economy, HSBC said pretax profit in its global banking and markets division, which includes its investment banking operations, more than doubled, to $2.2 billion. Its commercial banking unit also saw its pretax profit increase 16 per cent, to $2.2 billion.

HSBC's dependence on fast-growing markets in Asia and Latin America continued. The bank reported a pretax loss in its European and North American operations, but posted a $1.8 billion pretax profit in its Hong Kong business, an increase of almost 40 per cent from the third quarter of 2011.

The bank expressed concern about the European debt crisis and potential financial problems in the United States connected to the so-called fiscal cliff, though it said it was optimistic that China's slowing economy would rebound on the back of strong local investment.

"We forecast that growth will recover in 2013 as the impact of accelerated infrastructure approvals and ambitious regional investment plans filter through," HSBC said in a statement, referring to the Chinese economy. "We also expect to see economic recovery in Latin America heading into 2013, helped by policy stimulus measures across the region."

The bank's core Tier 1 capital ratio, a measure of a firm's ability to weather financial shocks, rose slightly in the quarter, to 11.7 per cent.

 

© 2012 The New York Times News Service