Bank sets aside $800m more to cover claims of money laundering and warns that eventual fines could be 'significantly higher' than $1.5bn
HSBC warned on Monday that fines by the US authorities to settle allegations of money laundering could be significantly greater than the $1.5bn (£940m) it has already set aside in anticipation of the penalty.
The scale of the potential cost of the revelations contained in a US Senate report, which showed how billions of dollars were laundered for drug barons and terrorists, came as the bank set aside an additional $800m in the third quarter to cover the potential fines. The additional provision comes on top of the $700m set aside at the half year, taking the total cost so far to $1.5bn.
The bank made clear that more provisions may be needed to cover the actions that it faces from a number of US regulators under anti-money laundering laws covered by the Bank Secrecy Act and Office of Foreign Assets Control.
"The resolution of at least some of these matters is likely to involve the filing of corporate criminal as well as civil charges and the imposition of significant fines, penalties and/or monetary forfeitures," the bank said. "There is high degree of uncertainty in making any estimate of the ultimate cost; is it possible that the amounts when finally determined could be higher, possibly significantly higher, than the amount accrued".
"We are actively engaged in discussions with US authorities to try to reach a resolution, but there is not yet an agreement," the bank said.
A further provision for UK "customer redress programmes" - largely the payment protection insurance (PPI) scandal - led to another $353m provision, taking the total to U$1.8bn. HSBC is the last of major UK banks to report its third quarter results during which the PPI scandal has emerged as the costliest mis-selling scandal in the UK.
The bank, which under chief executive Stuart Gulliver has embarked on a retrenchment from some of its international outposts, has cut 22,000 roles so far this year to take its workforce to 267,000.
"We have announced 24 disposals and closures this year, including eight since 30 June 2012, making a total of 41 since the beginning of 2011, exiting non‐strategic markets and selling businesses and non‐core investments," Gulliver said.
The provision led to a fall in pre-tax profit in the third quarter to $3.5bn pre-tax, compared with $7.1bn in the same quarter last year. Some $5.8bn of the change was caused by changes in the value of the bank's debt and the bank stressed that underlying profits were $5bn.
But the results are overshadowed by the damaging US Senate report which described the bank as having a "pervasively polluted" culture that exposed the bank to not only drug trafficking but also terrorist financing.
At a hearing before the Senate in July, David Bagley, HSBC's head of compliance, dramatically resigned. According to the register maintained by the Financial Services Authority, Bagley remains with the bank and authorised in a series of compliance functions although last week the bank named - only in an "acting" capacity - his successor as board advisor David Shaw. It is not immediately clear what Bagley's future role will be.