View the article online at http://citywire.co.uk/money/article/a607817
HSBC boss 'profoundly sorry' over money laundering and mis-selling
HSBC is the latest bank to grovel to customers and investors after scandals in the UK and US dent profits and tarnish its reputation.
HSBC has become the latest bank to grovel to its customers and investors after scandals in the UK and US dented half-year profits and more importantly damaged its reputation.
Chief executive Stuart Gulliver said he was ‘profoundly sorry’ after the bank made $2 billion (£1.3 billion) of provisions for mis-selling in the UK and for its role in a big money-laundering scandal in the US.
The bank has more than doubled its provisions against payment protection insurance (PPI) mis-selling to $1 billion. It has also set aside $246 million for potential compensation to business customers who were mis-sold complex and costly interest rate swaps as another form of loan insurance.
This follows similar moves on PPI and interest rate swaps by Barclays and Lloyds last week.
Like other banks, HSBC is helping regulators with their inquiries into Libor rate rigging, which could result in fines, although the bank said it was too early to say.
However, it is the US money laundering where its shame is deepest and where it is out on its own. Here the bank has made initial provisions of $700 million to meet the legal and regulatory costs of a probe into money laundering which saw $7 billion transferred from Mexico to the US in 2007 and 2008. A US Senate report this month criticised the bank’s ‘pervasively polluted’ culture.
The revelations have dealt a blow to the bank’s reputation as one of the best run banks in the world. HSBC is a member of Citywire Top Stocks through its top 10 position in the M&G Recovery fund run by Tom Dobell.
Gulliver told reporters on a conference call: ‘What happened in Mexico and the US is shameful, it’s embarrassing, it’s very painful for all of us in the firm.’
Chairman Douglas Flint said in a statement accompanying the results: ‘We cannot undo the mistakes but I can assure you that Stuart Gulliver and I are determined, and have made it our most important priority, to strengthen HSBC and reinforce our values.’
The provisions helped knock underlying profit before tax in the first half of the year 3% lower than a year ago to $10.6 billion.
Reported pre-tax profit was 11% higher at $12.7 billion, but this included $4.3 billion gains from disposals and $2.2 billion of accounting losses from falls in the price of its own debt.
Underlying revenues grew 4% in Hong Kong, Asia Pacific and Latin America, with profits in Hong Kong and Asia accounting for two-thirds of the group’s profits.
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