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 Europe's largest bank by market value provided $1.8 billion 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 500
million pounds (800.15 million US dollar) set aside by Barclays <BARC.L>
and 400 million pound provision by Royal Bank of Scotland <RBS.L>.
The bank said on Monday 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 1.5 billion pounds in a
group settlement, sources have said.
Banks in Europe and the United States have recently set aside as
much as $6.9 billion 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 already under
scrutiny for profiteering in the setting of benchmark lending rates,
relates to daily fixing rates which traders are alleged to have
manipulated.
HSBC's results showed underlying profit was $4.4 billion. The
underlying profit strips out price moves in the bank's own 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 $4.6 billion.
"If you strip out the regulatory provisions it’s a strong operating
quarter – unfortunately you can’t strip out the provisions," Richard
Hunter, head of equities at Hargreaves Lansdown, said.
HSBC's shares fell 3 percent when the results were first announced
but were down 0.3 percent at 637 pence by mid-morning.
“The results are OK, but I wouldn’t want to buy them at these
levels," Beaufort Securities sales trader Basil Petrides said. I’d
rather buy HSBC shares around the 600 pence level. There are still
too many ongoing regulatory issues with them,”
GLOBAL INVESTIGATION
U.S. authorities are also examining the alleged rigging of foreign
exchange benchmarks and any settlement there is likely to be more
costly. The U.S. Department of Justice has shown it has the power
and willingness to push through multi-billion dollar fines on banks
for misconduct.
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HSBC said the British regulator was the only authority it was
holding "detailed" settlement discussions with.
"At the moment the only detailed settlement discussions in which we
are involved is with the FCA," Iain Mackay, HSBC finance director
said, referring to Britain's Financial Conduct Authority.
"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. Earlier this year, banking research firm
Autonomous put the worldwide total at around $35 billion, which
would dwarf the $6 billion paid by 10 financial firms to settle an
international investigation into the manipulation of benchmark
interest rates.
HSBC also said it had been summoned to appear before French
magistrates over whether its Swiss private bank had helped French
citizens to evade tax.
The $1.8 billion HSBC has set aside includes $701 million to
compensate British customers who were mis-sold products and a $550
million settlement with a U.S. government agency over allegations
the bank mis-sold mortgage-backed securities.
HSBC's adjusted revenues in the third-quarter were flat at $15.6
billion.
Unlike Asian-focused rival Standard Chartered, which reported a
surge in its bad debts in the third quarter, largely due to weak
commodity markets, HSBC's loan impairment charges more than halved
to $760 million compared to the same period a year ago.
(Additional reporting by Tricia Wright and Sudip Kargupta. Writing
by Carmel Crimmins. Editing by Jane Merriman)
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