Costly skeletons see HSBC profits and shares tumble
Bank’s market value falls by £6bn after 17% drop in pre-tax profits
HSBC has seen its market value take a £6billion knock after revealing a worse than expected 17 per cent fall in pre-tax profits amid rising costs for customer redress.
The shares fell by 5 per cent as the UK’s biggest bank unveiled a £12.2bn pre-tax profit for 2014. Its return on equity has fallen from 9.2 per cent to 7.3 per cent, earnings per share are down 17 per cent and operating expenses up 6.1 per cent.
Chairman Douglas Flint blamed the negative effect of £2.4bn of fines, settlements and redress as the bank lifted its provisions for customer remediation by £910m to £2.5bn.
That included another £624m for PPI mis-selling and £187m for interest rate swap redress.
With the bank now facing investigation into its support for client tax evasion, Mr Flint said: “We deeply regret and apologise for (...) unacceptable historical practices and behaviour within the Swiss private bank.”
He said the episode showed “how far society’s expectations have changed in terms of banks’ responsibilities”.
Chief executive Stuart Gulliver said: “A number of us think the practices of the private bank in the past are a source of shame and reputational damage to HSBC. I think shame would be a reasonable noun to use.”
Mr Gulliver, meanwhile, received total pay of £7.6m last year, down from £8m in 2013, due to his bonus being trimmed from £5.5m to £3.4m. Mr Gulliver said the lower bonus reflected “failures” linked to foreign exchange manipulation.
The bank’s provisions for penalties, fines and settlements include £358m for US and UK investiga- tions into foreign exchange trading, which HSBC says are ongoing.
Mr Flint’s total pay increased to £2.5m from £2.4m for the year, but he did not receive a bonus.
Pressed on whether he was entitled to any bonus, Mr Gulliver said his bonuses were subject to 100 per cent clawback by the bank for seven years, enabling the bank to demand repayment “if anything turns up later that happened on my watch”.
Mr Gulliver has come under pressure not to take his bonus following the revelations earlier this month about the bank’s role in supporting more than 1,000 UK customers in dodging tax bills between 2005 and 2007.
The Financial Conduct Authority, HMRC and Swiss prosecutors are looking into the allegations, and Mr Flint is to appear before the Treasury Committee tomorrow to answer questions on the issue.
It was also reported over the weekend that Mr Gulliver held £5m in a Swiss bank account through a Panamanian company.
But the chief executive has explained that the account was set up in the 1990s to ensure privacy when the bank allowed personal accounts to be viewed by other staff. Mr Gulliver has said there were no tax implications and he has always paid UK tax at the full rate
r Gulliver said: “2014 was a challenging year in which we continued to work hard to improve business performance while managing the impact of a higher operating cost base. Profits disappointed, although a tough fourth quarter masked some of the progress made over the preceding three quarters.
“Many of the challenging aspects of the fourth quarter results were there is any doubt, we will absocommon to the industry as a lutely not do business with clients whole.” .who are evading taxes or who fail
Questioned on the rising costsMof our meet our international crime past misdemeanours, he said: compliance standards.” “Virtually every single one of them One analyst, Augustin Eden at goes back to pre-2010.” Accendo Markets, commented:
On the future costs of regulation “When the first paragraph cites and compliance, he said the bank ‘significant items including fines, would “continue to provide as settlements and UK customer much clarity as we possibly can to redress’ impacting revenues and the market place”. costs, it certainly doesn’t bode well
Mr Gulliver added: “In case for the rest of the report.”
‘‘ A number of us think the practices of the private bank in the past are a source of shame and damage