Howard Mustoe and Gavin Finch London
HSBC WAS likely to face criminal charges from US investigations into money laundering and the cost of a settlement might “significantly” exceed the $1.5 billion (R13bn) the bank had already set aside, it said yesterday.
The European bank made an additional $800 million provision in the third quarter to cover the costs of the investigation, adding to the $700m it had already earmarked.
HSBC also put aside more than $357m in the period to compensate UK clients wrong-ly sold payment-protection insurance on loans as it posted an increase in pretax profit that missed analysts’ estimates.
“The final amount of the financial penalties could be higher, possibly significantly higher,” HSBC said in a statement. “The resolution of at least some of these matters is likely to involve the filing of corporate criminal as well as civil charges.”
Chief executive Stuart Gulliver’s attempts to reduce costs at the bank are being hobbled by the US probes and compensation claims from UK clients.
A senate committee said in July that failures in HSBC money laundering controls allowed terrorists and drug cartels access to the US financial system. Standard Chartered, which like HSBC makes most of its profit in Asia, paid $340m in August to settle a regulator’s claim it broke Iranian sanctions rules.
“The size of the provision is a shock,” Olivetree Securities financial industry strategist Simon Maughan said in London. “There was a huge fuss made about Standard Chartered’s fine, but this far exceeds that.”
Underlying pretax profit, which excludes acquisitions and disposals as well as accounting losses on the fair value of the lender’s own debt, rose to $5.04bn in the third quarter from $2.24bn in the year-earlier period.
Underlying income, at $16.1bn, missed the $16.5bn estimate of Shore Capital banking analyst Gary Greenwood.
Gulliver is seeking to cut costs by $2.5bn to $3.5bn and revive profit by selling assets to focus on emerging economies in which the bank has a greater market share. The savings were likely to exceed that range and be met by the end of next year, HSBC said yesterday.
Costs as a proportion of revenue increased to 71 percent from 50 percent in the year earlier period, outside Gulliver’s 48 percent to 52 percent target range. – Bloomberg