CITY FOCUS: HSBC sets aside £1.3bn to cover spate of global scandals

| July 31, 2012 | 0 Comments

James Salmon

16:24 EST, 30 July 2012


16:24 EST, 30 July 2012

HSBC yesterday revealed it parked almost £100billion of spare cash with central banks due to growing fears over the economy and the financial security of rival lenders.

The staggering amount compares with just £6.5billion three years ago and £43.5billion last year in a damning indictment of the ailing health of Europe’s banking sector.

The international lender, which revealed a 3 per cent drop in profits to £6.8billion after setting aside £1.3billion to cover a spate of scandals, said it was increasingly using central banks as a safe haven for its money.

Global scandals hit world's local bank: HSBC fights to salvage its reputation over money laundering allegations

Global scandals hit world’s local bank: HSBC fights to salvage its reputation over money laundering allegations

Chief executive Stuart Gulliver said
this was partly due to the debt crisis ripping through the eurozone and
the effect it is having on the security of banks.

He added that the higher returns
achieved from lending money to rivals rather than tucking it away with
the Bank of England or the European Central Bank are increasingly seen
as a risk not worth taking.

‘We have masses more deposits than
loans,’ he said. ‘Typically we would put the surplus into bank markets –
but we are concerned about the credit risk of counterparties.’

Gulliver, fighting to salvage HSBC’s
reputation over allegations it laundered billions of dollars from
Mexican drug cartels and rogue states, served up a gloomy prognosis for
Europe and the UK, contrasting it with the ‘powerhouse’ Asian economy.

Without money set aside to pay
compensation and movements in the value of its own debt, HSBC’s headline
profits were up 11 per cent to £8.1billion in the six months to the end of June.

This was driven primarily by strong
growth in Hong Kong and Asia Pacific, which raked in £5.2billion – roughly
two thirds of the group’s profits.  

Gulliver said: ‘Our presumption is
that European leaders will take the necessary measures to preserve the
euro but, even so, we expect the eurozone’s economy to contract this
year. In the US, we anticipate sub par growth this year and next.’

In contrast he predicted emerging
markets would grow at a brisk pace, with growth in China likely to hit
or exceed 8 per cent this year.

The chief executive also hailed progress in implementing a global strategy designed to streamline the sprawling organisation.

This has involved slashing HSBC’s
global workforce by 27,500 to 271,500 since the start of last year and
selling off 36 businesses to make the bank more manageable. The ruthless
cost-cutting regime has put HSBC at loggerheads with British trade
unions, after announcing 2,217 job losses in the UK in April.

But it has started to pay dividends for the bank.

Profits in the first half of the year
were boosted by £2.7billion of asset sales, including the disposal of
its Card and Retail Services business and 138 branches in the US.

HSBC’s sprawling global empire has
been cited as one of the reasons why it faces allegations of allowing
Mexican drug lords, terrorists and rogue states  to launder dirty money
through the ‘World’s local bank’ during much of the last decade.

This, combined with the mis-selling
of complicated ‘interest rate swap’ loans to small businesses and the
payment protection insurance scandal, have shattered the lender’s
reputation, as well as hitting its bottom line.

But Gulliver insisted the money
laundering scandal, which was laid bare in a scathing report published
by US regulators this month, did not indicate widespread corruption.

Under a drive to improve the culture
at the bank, HSBC’s employees are expected to act with ‘courageous
integrity’ in all that they do. Referring to the money laundering
allegations Gulliver said: ‘We would argue that these were cases of
errors and omissions in management rather than corrupt intent.’

He added: ‘What happens in Mexico and the US is shameful and embarrassing, and affects all of us in the firm.’

Douglas Flint, the bank’s chairman,
revealed that it was looking at clawing back bonuses from former
executives, although he insisted that its current management team is
‘untarnished’ by the scandal. This could leave former boss Mike Geoghan
in the firing line.

Shares jumped 12p to 543.1p on the back of yesterday’s figures.

But the spectre of yet more scandal – and further pay offs – is looming.

The bank confirmed it is being
investigated for rigging interest rates used to set mortgages – which
landed Barclays with a £290million fine earlier this month.

And HSBC also admitted the provision
of almost £500million  to pay fines to US regulators for money
laundering could have to be raised significantly.

Here’s what other readers have said. Why not add your thoughts,
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The comments below have not been moderated.

You mean HSBC had a reputation? apart from being greedy and dishonest of course.

I remember a certain person telling me how wrong I was over HSBC and Barclays on this site. Would you care to comment now? Or shall we wait for the big one ?

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