HSBC has warned it is facing a $378m (£237m) penalty for rigging currency markets and a possible criminal investigation in France over alleged tax offences.
UK banks have now set aside more than £1bn to settle allegations of rigging the £3.5tn-a-day currency markets.
HSBC’s provision for currency exchange rigging was part of a total of $1.6bn in charges for the third quarter, including $701m for customer compensation (of which $589m was for payment protection insurance), and $550m for an agreement with the Federal Housing Finance Authority in the US about the sale of bonds during the 2007 credit crunch.
HSBC, which is the UK’s biggest bank, also warned about potentially “significant” fines and penalties as a result of an on-going investigation by French magistrates into the tax affairs of some of the clients at its private bank.
A criminal investigation is possible, the bank warned. The bank’s shares slipped as the market digested the impact of the regulatory breaches, which knocked 9% off its profits for the first nine months of the year,leaving them at $17bn.
Profitability was also held back following a rise in costs, which the bank said was the result of an increase in risk, compliance and related costs – an impact that the chief executive, Stuart Gulliver, said was now part of running a global bank with a presence in 74 countries.
“We continued to build essential infrastructure to deliver against our risk and compliance commitments and fulfil our regulatory obligations in the third quarter,” he said.
Three months ago, HSBC warned that the fear of fines was forcing banks to become more risk averse and putting too much pressure on its staff as they tried to adopt all the changes necessary.
Sandy Chen, analyst at Cenko Securities, said the rise in costs came as income showed no growth, which “looks terrible, but pretty much all of that gap comes from increased regulatory charges and higher compliance-related operating expenses”.
Chen, who said HSBC was still “resilient”, added: “There are likely to be further charges: in the outlook statement, management highlighted the potential for a significant financial penalty related to the FCA [Financial Conduct Authority] forex investigation, and a possible criminal investigation in private banking in France.”
Since becoming boss of HSBC in 2010 Gulliver has hired 5,000 more to work in the compliance department, which will employ 7,000 by the year-end. The bank is now braced for a fine for breaches of “systems and controls” in its currency arm by the FCA, which is aiming for a coordinated settlement with five other banks later this month.
But HSBC appeared to cast doubt on whether this settlement could also include the US authorities, by making clear that its $378m provision was just to handle the UK regulatory inquiry.
Iain Mackay, the bank’s finance director, said the rise in provision for PPI scandal was the result of a more “aggressive approach” being taken by the claims management companies which put in claims for compensation on behalf of customers during August and September. HSBC describes the UK and Hong Kong as being its home markets.
Gulliver said that the recent protests in the former British territory had not made the bank question its 150-year presence there. But he warned that “rule of law is incredibly, incredibly important” which would determine the scale of foreign investment in Hong Kong.
Gulliver also disclosed that the bank did not believe its bonus policies breached the EU’s bonus cap. This is despite the recommendation by the pan-European banking regulator that payments known as allowances are not in compliance with the law, which requires bonuses to be capped at one times salary or two times salary with shareholder approval.
Gulliver said HSBC had legal advice that showed its allowances – paid in shares and not able to be clawed back by the bank – met the requirements set out by the European Banking Authority. Gulliver receives around £32,000 a week in such allowances.
theguardian.com
UK banks have now set aside more than £1bn to settle allegations of rigging the £3.5tn-a-day currency markets.
HSBC’s provision for currency exchange rigging was part of a total of $1.6bn in charges for the third quarter, including $701m for customer compensation (of which $589m was for payment protection insurance), and $550m for an agreement with the Federal Housing Finance Authority in the US about the sale of bonds during the 2007 credit crunch.
HSBC, which is the UK’s biggest bank, also warned about potentially “significant” fines and penalties as a result of an on-going investigation by French magistrates into the tax affairs of some of the clients at its private bank.
A criminal investigation is possible, the bank warned. The bank’s shares slipped as the market digested the impact of the regulatory breaches, which knocked 9% off its profits for the first nine months of the year,leaving them at $17bn.
Profitability was also held back following a rise in costs, which the bank said was the result of an increase in risk, compliance and related costs – an impact that the chief executive, Stuart Gulliver, said was now part of running a global bank with a presence in 74 countries.
“We continued to build essential infrastructure to deliver against our risk and compliance commitments and fulfil our regulatory obligations in the third quarter,” he said.
Three months ago, HSBC warned that the fear of fines was forcing banks to become more risk averse and putting too much pressure on its staff as they tried to adopt all the changes necessary.
Sandy Chen, analyst at Cenko Securities, said the rise in costs came as income showed no growth, which “looks terrible, but pretty much all of that gap comes from increased regulatory charges and higher compliance-related operating expenses”.
Chen, who said HSBC was still “resilient”, added: “There are likely to be further charges: in the outlook statement, management highlighted the potential for a significant financial penalty related to the FCA [Financial Conduct Authority] forex investigation, and a possible criminal investigation in private banking in France.”
Since becoming boss of HSBC in 2010 Gulliver has hired 5,000 more to work in the compliance department, which will employ 7,000 by the year-end. The bank is now braced for a fine for breaches of “systems and controls” in its currency arm by the FCA, which is aiming for a coordinated settlement with five other banks later this month.
But HSBC appeared to cast doubt on whether this settlement could also include the US authorities, by making clear that its $378m provision was just to handle the UK regulatory inquiry.
Iain Mackay, the bank’s finance director, said the rise in provision for PPI scandal was the result of a more “aggressive approach” being taken by the claims management companies which put in claims for compensation on behalf of customers during August and September. HSBC describes the UK and Hong Kong as being its home markets.
Gulliver said that the recent protests in the former British territory had not made the bank question its 150-year presence there. But he warned that “rule of law is incredibly, incredibly important” which would determine the scale of foreign investment in Hong Kong.
Gulliver also disclosed that the bank did not believe its bonus policies breached the EU’s bonus cap. This is despite the recommendation by the pan-European banking regulator that payments known as allowances are not in compliance with the law, which requires bonuses to be capped at one times salary or two times salary with shareholder approval.
Gulliver said HSBC had legal advice that showed its allowances – paid in shares and not able to be clawed back by the bank – met the requirements set out by the European Banking Authority. Gulliver receives around £32,000 a week in such allowances.
theguardian.com
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