HSBC sets aside $2 billion in apology for compliance lapses

Cost Cuts

Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profit by selling assets to focus on emerging economies in which the bank has a greater market share. He has overseen 36 asset sales and closures so far, including the disposal of its U.S. credit card unit to Capital One Financial Corp. Gulliver said today he is “about 60 to 70 percent” through the disposals program and expects to deliver at the “upper end” of his cost-cut target.

Costs as a proportion of revenue were unchanged at 57.5 percent, more than Gulliver’s 48 percent to 52 percent target.

Barclays Plc and Lloyds Banking Group Plc have set aside a total of 5.6 billion pounds ($8.8 billion) to compensate clients sold payment protection insurance they didn’t need. Barclays last month paid a record 290 million pounds in fines for manipulating the London interbank offered rate.

Swaps, PPI

HSBC set aside an additional $1 billion to compensate customers who were mis-sold payment protection insurance and $240 million for those sold interest rate swaps that later lost them money. In the case of payment-protection insurance, British regulators have found some customer clients were forced to buy, or didn’t know they had purchased, insurance to cover repayments on credit cards or mortgages they were taking out.

The bank had already made a $717 million provision for so- called payment protection insurance compensation through the end of 2011. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, increased provisions for customer redress by 700 million pounds in the second quarter, bringing the total it’s set aside to 4.3 billion pounds.

“We’ve seen a higher level of incoming claims than we had anticipated when we started looking at this issue around this time last year, and that level of incoming claims has remained at a high level when we would have expected it to start tailing off,” HSBC Finance Director Iain Mackay told analysts today.

European Outlook

Pretax profit in Asia excluding Hong Kong rose 17 percent to $4.37 billion. In Europe, the bank swung into a loss of $667 million compared with a profit of $2.15 billion. HSBC said the economic outlook in the region will be “subdued.”

“Our assumption is that European leaders will take the necessary measures to preserve the euro but, even so, we expect the euro zone’s economy to contract this year,” Gulliver, 53, said in the statement.

Pretax profit at HSBC’s investment bank, overseen by Samir Assaf, increased to $5.05 billion from $4.81 billion. Revenue at the investment bank rose 6.6 percent to $10.35 billion. By contrast, Wall Street’s five biggest banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., posted the lowest first-half revenue since 2008 in the first half of 2012 as trading and deal-making dried up.

Bloomberg News

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