HSBC set for £1bn fine over US breaches

Mark Mullen
Mark Mullen
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HSBC warned that it could face criminal charges and fines of nearly £1bn following money laundering breaches in the US.

Europe’s biggest bank has set aside £935m to cover the potential scandal, but warned it could have to pay out considerably more.

HSBC said the US investigation has damaged the bank’s reputation and forced it to set aside a further £500m to cover a potential fine for breaches in anti-money laundering controls in Mexico, adding to the £435m put aside in July.

“It could be significantly higher,” said chief executive Stuart Gulliver, saying the latest provision is based on discussions with the various US authorities involved in the probe.

The timing of any settlement is in the hands of regulators and is likely to involve the filing of corporate criminal and civil charges, the bank said.

A US Senate report in July slammed HSBC for letting clients shift potentially illicit funds from countries such as Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.

HSBC, which owns Leeds-based First Direct, warned earlier this year it could face criminal or civil charges as part of the investigation.

The London-based bank has said the issue was “shameful and embarrassing” after the report criticised a “pervasively polluted” culture at the bank and said HSBC’s Mexican operations had moved £4.4bn into its US operations between 2007 and 2008.

“The report undoubtedly caused considerable reputational damage to HSBC.

“The extent to which that has resulted in loss of business is hard to measure, but it has undoubtedly damaged our brand,” Mr Gulliver said.

He said a number of staff had left the firm as a result of the investigation and a number had pay clawed back.

Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said: “The money laundering provision is a concern, particularly given the uncertainty on what the final figure might be.

“The additional PPI provision, while prudent and in line with its peers, is another reason for investors to think carefully about entering a sector fraught with unknowns, whilst management outlook comments remained unconvincing.”

HSBC is also providing an extra £220m to cover compensation for mis-selling PPI, pushing its total PPI bill to £1.2bn.

Like Barclays, Lloyds and RBS before it, the mounting charges threaten to overshadow HSBC’s stronger underlying progress, with pre-tax profits, excluding one-off provisions, more than doubling to £3.1bn in the third quarter.

The improvement was driven by a strong performance in its investment banking arm Global Banking and Markets as conditions in the eurozone stabilised.

First Direct is also playing a growing part.

The Leeds-based phone and internet bank approved £3.9bn of new lending in the first nine months of the year, an increase of £1.1bn since June.

Some £700m of the total was lent to first time buyers.

First Direct said its market share of new mortgages increased from 2.9 per cent in 2011 to 3.6 per cent.

A spokeswoman for the internet and phone-based bank said its total share of the UK mortgage market is now 1.5 per cent.

First Direct, headed by chief executive Mark Mullen, employs about 2,400 in Yorkshire.

HSBC reduced bad-debt charges in its latest quarter to £1.1bn from £1.5bn, although its total exposure to the troubled eurozone economies of Spain, Italy, Portugal, Ireland, Greece and Cyprus was slightly higher at £23.3bn, up from £23.1bn.

The money laundering issue is another blow for the reputation of British banks, after rival Barclays was fined £282m in June for rigging Libor interest rates and the industry has had to set aside more than £12bn to compensate UK customers for mis-selling insurance products.

Mr Gulliver said it would take time to clean up these issues.

An increase in business lending

HSBC said it provided £22.7bn of gross new lending to UK businesses in the third quarter, an increase of five per cent.

It lent £9.5bn to small and medium-sized enterprises (SMEs), a 10 per cent year on year increase, whilst approving over 80 per cent of all small business lending applications.

Commercial deposits increased by around 17 per cent year-on-year, with UK businesses depositing an additional £5.7bn with HSBC since December 2011.

The number of companies switching to HSBC in the first three quarters of 2012 increased by 65 per cent compared with same period last year.