LONDON: HSBC’s profits fell short of expectations in the third quarter after the bank set aside $1.8bn for misconduct settlements and compensation for customers, including a potential fine for rigging currency markets.
The provision and a jump in HSBC’s everyday compliance costs show the impact of regulators’ increasing efforts to clamp down on bad behaviour in the global banking industry that contributed to the financial crisis.
HSBC said yesterday it had spent $700m more this year on compliance and risk than a year ago, and that level of expense looked set to stay, meaning it would miss one of its main cost targets. “The cost base of a global bank like ourselves is higher than it was before, because ... it includes a significantly higher compliance and regulatory cost than historically the banks had invested in,” Chief Executive Stuart Gulliver said.
“It reflects the fact that standards, foreign policy, etc, all evolve in a world that is a lot less certain than it was 10, 15 years ago.”
HSBC’s third-quarter underlying earnings fell 12 percent from a year ago to $4.4bn, after operating expenses jumped 15 percent on the year. That included a $378m provision for the forex investigation, $589m to compensate British customers who were mis-sold payment protection insurance products and a $550m settlement in the United States for mis-selling mortgage-backed securities.
Gulliver said the bank was likely to miss a target set out 18 months ago to get costs down to about 55 percent of revenues by 2016. He said it was more likely to be in the high 50s or near 60 percent. It was 62.5 percent so far this year.
HSBC added 1,400 more compliance staff in the third quarter and now had 24,800 staff in risk and compliance, or one in 10 of its employees.
The bank also said it had been summoned to appear before French magistrates over whether its Swiss private bank had helped French citizens to evade tax, and could face a criminal investigation.
“There is quite a bit of upward pressure on costs. It’s an honest assessment of where they are, the regulatory cost of being a large global bank is far greater,” Mike Trippitt, analyst at Numis Securities, said.
HSBC’s shares were down 1.8 percent at 628 pence by 1225 GMT, underperforming a 0.8 percent dip in the European bank index.
HSBC said its forex investigation provision covered “detailed” talks with Britain’s financial regulator about alleged manipulation in the $5.3 trillion-a-day forex market.
The talks were in relation to systems and controls in one part of its spot forex business in London, it said. Last month HSBC fired two traders in London,
sources said. Reuters
