HSBC sets aside $378m for FX investigation

HSBC Canary Wharf

HSBC confirmed it had set aside $378m for fines relating to suspected manipulation of foreign exchange markets, amid ongoing talks with U.K. regulators.

The provision came on top of other charges revealed in the bank's third-quarter results, in which it reported pre-tax profit up 2 percent at $4.61 billion.

The bank said discussions with the U.K. Financial Conduct Authority (FCA) over a proposed resolution of their foreign exchange investigation were ongoing. The probe is related to "one part of its spot FX trading business" in London, HSBC said.

"Although there can be no certainty that a resolution will be agreed, if one is reached, the resolution is likely to involve the payment of a significant financial penalty," the bank said in a statement. "We continue to cooperate fully with regulatory and law enforcement authorities in the U.K. and other jurisdictions."

Six banks are involved in talks with the U.K.'s Financial Conduct Authority over the allegations that traders had conspired to fix forex rates. The other five institutions - Barclays , Citigroup , JPMorgan Chase , Royal Bank of Scotland (RBS) and UBS - have already taken provisions.

Last week RBS said it had put £400 million aside to cover expected fines relating to the issue, and Barclays confirmed a £500 million provision.

HSBC's operating expenses were 16 percent higher at $11.1 billion, compared with the same period in 2013, "reflecting a number of significant items".

These included the forex investigation provision and a charge of $550 million relating to an agreement with the U.S. Federal Housing Finance Agency. The bank also increased its provision for the mis-selling of Payment Protection Insurance (PPI) in the U.K. to $701 million from $428 million in the third quarter 2013.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said that beyond the regulatory provisions, the third quarter was a strong one for HSBC. He highlighted that the bank was benefiting from the ongoing strength of its balance sheet, and its Commercial Banking and Global Banking divisions had posted a strong performance.

But he added: "Unfortunately, the provisions cannot be ignored."

"The share price has outperformed the market over the last six months, although over the last year it is down 6 percent, as compared to a 3 percent dip for the wider FTSE 100," he said in a note. "The general market view remains tainted by the regulatory provisions, such that the consensus is restrained to a hold, albeit a strong one."

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