HSBC drawn into global currency market investigations

HSBC sign

HSBC has become the latest bank to admit it is co-operating with the global investigation into the possible manipulation of the £3tn a day currency markets.

The admission came on Monday as the UK's biggest bank revealed it had more than doubled the number of staff dealing with legal and regulatory issues.

As it reported a 30% rise profits to $4.5bn (£2.8bn) in the third quarter, the bank also disclosed it was reviewing sales to 20,000 customers in the UK who bought wealth management products after 2008. It also said it needed to increase its provisions against possible regulatory action by US authorities over its Swiss banking operations.

Stuart Gulliver, HSBC's chief executive, said the bank had increased the number of its staff working on regulatory issues from 2,000 at the start of 2011 to 4,700 now after hiring 1,600 more compliance staff since the end of December alone. Gullliver has set the bank on a track to cut costs, making $4.5bn of savings since 2011 – some of which has now been ploughed into expanding the bank's compliance functions.

HSBC's shares were the biggest risers in the FTSE 100 in early trading, gaining 2% to 700p even though there was some anxiety that the bank might miss its own targets for returns to shareholders.

Hit last year by a record £1.2bn fine for breaching money laundering laws in the US and allowing drug traffickers to move money around the financial system, HSBC has been forced to take a series of steps to increase its compliance and legal functions. Other banks have been doing the same – America's biggest bank, JP Morgan, has hired 3,000 compliance staff this year..

In the third quarter, HSBC took additional provision for the cost of compensating customers mis-sold payment protection insurance of $514m and $132m to businesses missold interest rate products. Gulliver said a new investigation into the way its wealth management division had sold products had led to a $149m provision after the Financial Conduct Authority conducted a mystery shopping exercise into its sales practices. The bank had to appoint Grant Thornton as a "skilled person" under the instruction of the regulators to review its sales practices and now expects to pay out up to $30m in compensation - the rest of the $149m being administrative costs.

Gulliver said the bank had not had to suspend anyone in connection with the investigation into the possible manipulation of a foreign exchange benchmark which has been under way around the globe for the past few weeks. The FCA is among a number of regulators known to be looking at the way a price for currencies is set during a 60 second trading window. The "names we've been given" no longer work at the bank, Gulliver said.

HSBC is adding its name to the growing list of banks admitting to co-operation with the regulators, including Royal Bank of Scotland, Deutsche Bank, UBS, JP Morgan and Citigroup. Gulliver would not deviate from a statement issued by the bank. "The Financial Conduct Authority is conducting investigations alongside several other agencies in various countries into a number of firms, including HSBC, relating to trading on the foreign exchange market. We are cooperating with the investigations which are at an early stage".

The bank said there was uncertainly about the amount of capital it might need to hold because of ongoing changes being discussed with regulators.

Gulliver was upbeat about the UK and Hong Kong and appeared to express commitment to the UK, where the bank has been headquartered since taking over Midland bank in the mid 1990s.

"Our home markets of the UK and Hong Kong contributed more than half of the group's underlying profit before tax. Hong Kong performed well in the quarter, reflecting broad-based revenue growth. Hong Kong continues to benefit from its close economic relationship with mainland China. We remain well positioned to capitalise on improving economic conditions in these markets," Gulliver said.

He was positive about China and also the UK, which he said "should see positive growth and outperform the eurozone". But he warned that economic growth in Latin America would remain slow, although the Mexican economy should strengthen in 2014.

The bank's forecasts for global growth remain constant at 2.0% in 2013 and 2.6% in 2014.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Monday 4th November 2013 11.11 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

image: © Howard Lake

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