HSBC’s profits below target after setting aside US$1.8b
Print Edition
HSBC’S profits fell short of expectations in the third quarter after the bank set aside US$1.8 billion 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 behavior in the global banking industry that contributed to the financial crisis.
HSBC said yesterday that it had spent US$700 million 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 earlier to US$4.4 billion, after operating expenses jumped 15 percent on the year.
That included a US$378 million provision for the foreign exchange investigation, US$701 million to compensate British customers who were mis-sold insurance products and a US$550 million settlement in the US 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,” said Mike Trippitt, analyst at Numis Securities.
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