Steve Slater and Matt Scuffham London
HSBC HOLDINGS has set aside $378 million (R4 billion) for a potential settlement with Britain’s financial watchdog for alleged manipulation of currency markets as the bank reported a 12 percent fall in underlying profit in the third quarter.
Europe’s largest bank by market value provided $1.8bn in total in the quarter for fines, settlements and compensation costs related to mis-selling loan insurance.
HSBC’s provision for the forex investigation was lower than the £500m (R9bn) set aside by Barclays and £400m provision by Royal Bank of Scotland.
The bank said yesterday that the British regulator had proposed a resolution of its investigation into alleged manipulation in the $5.3 trillion-a-day global forex markets. HSBC is one of six banks in talks with the regulator to pay about £1.5bn in a group settlement, sources have said.
Banks in Europe and the US have recently set aside as much as $6.9bn for possible forex settlements.
The banking industry has already paid out billions of dollars to settle investigations across a range of activities, including mortgages and benchmark interest rates as authorities have tried to crack down on the excesses that led to the financial crisis.
The forex manipulation, revealed after banks were under scrutiny for profiteering in the setting of benchmark lending rates, relates to daily fixing rates that traders are alleged to have manipulated.
HSBC’s results showed underlying profit was $4.4bn. The underlying profit strips out price moves in the bank’s debt and adjusts for businesses sold or bought.
On a statutory basis, analysts had been expecting pretax profits to climb 16 percent in the quarter compared with last year, but they rose just 2 percent to $4.6bn.
“If you strip out the regulatory provisions it’s a strong operating quarter – unfortunately you can’t strip out the provisions,” Richard Hunter, the head of equities at Hargreaves Lansdown, said.
HSBC’s shares fell 3 percent when the results were first announced.
“The results are OK, but I wouldn’t want to buy them at these levels,” Basil Petride at Beaufort Securities said. “I’d rather buy HSBC shares around the £6 level. There are still too many ongoing regulatory issues with them.”
US authorities are also examining the alleged rigging of foreign exchange benchmarks and any settlement there is likely to be more costly. The US Department of Justice has shown it has the power and willingness to push through multibillion-dollar fines on banks for misconduct.
HSBC said the British regulator was the only authority it was holding “detailed” settlement discussions with.
Iain Mackay, the HSBC finance director said: “There are a number of other jurisdictions that have expressed interest in this topic and we are working closely with authorities in each of those to work through those issues.”
Estimates on how much banks could pay out in total in the forex probe vary wildly. – Reuters