HSBC ‘shamed’ by its lax controls and flaws

HSBC’s boss said yesterday that revelations of lax anti-moneylaundering controls had been “shameful and embarrassing” for Europe’s biggest bank, and may force it to pay out more than $2bn for those flaws and in compensation for mis-selling loan insurance and hedging products in the UK.

HSBC set aside $700m to cover fines and other costs for an antimoney-laundering scandal, after a US Senate report criticised it this month for letting clients shift funds from dangerous and secretive countries, notably Mexico.

The ultimate cost could be “significantly higher”, HSBC CE Stuart Gulliver said. “What happened in Mexico and the US is shameful, it’s embarrassing, it’s very painful for all of us in the firm,” he said.

“We need to execute on the compliance changes and then prove ourselves worthy and rebuild this over a number of years. There are no quick and easy fixes,” he said.

The Senate report criticised a “pervasively polluted” culture at the bank and said HSBC’s Mexican operations had moved $7bn into its US operations between 2007 and 2008. The provision ate into firsthalf underlying profit, which fell 3% from a year earlier to $10,6bn, excluding gains from assets sales and losses on the value of its own debt.

HSBC set aside $1,3bn more to compensate UK customers for selling inappropriate loan insurance to individuals and interest-rate hedging products to small businesses.

It is also one of more than a dozen banks under scrutiny in a global interest rate-rigging scandal that has rocked the sector and further damaged the reputation of bankers following criticism of their culture and standards.

“It’s very unfortunate and deeply concerning that even the banks considered more secure, such as HSBC, are so seriously at risk,” said a top 30 investor in HSBC.

“And the news is still coming out — we have yet to see the impact, if any, of the Libor investigation and HSBC’s role in that. It’s hard to see how much more bad news the markets can take,” said the investor, who asked not to be named.

HSBC’s share price was up 0,9% to 535,8p yesterday, lagging behind a 2% rise in Europe’s bank index.

US and British authorities fined fellow UK-based bank Barclays $453m for manipulating Libor, the interest rate based on how much banks charge to lend to each other. More banks are expected to be drawn into the investigation.

Mr Gulliver said that as a contributor to Libor and its eurozone equivalent, Euribor, HSBC was cooperating with regulators, but it was too early to predict the outcome.

HSBC said it was in talks to settle the investigation into its US antimoney-laundering compliance with the US department of justice and other regulators. “It may take several more months to come to fruition,” Mr Gulliver said.

He is midway through an overhaul to cut costs, sell or shrink unprofitable businesses, and to direct investment to Asian markets. The bank has cut 27 000 jobs since the beginning of last year. Reuters