HSBC Holdings Plc said it’s likely to face criminal charges from U.S. anti-money laundering probes and the cost of a settlement may “significantly” exceed the $1.5 billion the bank has set aside.
The lender made an additional $800 million provision in the third quarter to cover the costs of the investigation, adding to the $700 million it had already earmarked. HSBC also put aside $357 million in the period to compensate U.K. clients wrongly sold payment-protection insurance on loans as it posted an increase in pretax profit that missed analysts’ estimates.
“The final amount of the financial penalties could be higher, possibly significantly higher,” HSBC said in a statement today. “The resolution of at least some of these matters is likely to involve the filing of corporate criminal as well as civil charges.”
Chief Executive Officer Stuart Gulliver’s attempts to reduce costs at the bank are being hobbled by the U.S. probes and compensation claims from U.K. clients. A Senate committee said in July that failures in HSBC money-laundering controls allowed terrorists and drug cartels access to the U.S. financial system. Standard Chartered Plc, which like HSBC makes most of its profit in Asia, paid $340 million in August to settle a regulator’s claim it broke Iranian sanctions rules.
“The size of the provision is a shock,” said Simon Maughan, a financial industry strategist at Olivetree Securities Ltd. in London. “There was a huge fuss made about Standard Chartered’s fine, but this far exceeds that.”
HSBC fell as much as 2.7 percent in London trading and was 1.4 percent lower at 617.5 pence at 12:58 p.m. in London.
Underlying pretax profit, which excludes acquisitions and disposals as well as accounting losses on the fair value of the lender’s own debt, rose to $5.04 billion in the third quarter from $2.24 billion in the year-earlier period, missing the $5.6 billion median estimate of eight analysts surveyed by Bloomberg. Underlying income, at $16.1 billion, missed the $16.5 billion estimate of Gary Greenwood, a banking analyst at Shore Capital Ltd. in Liverpool, England.
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. The savings are likely to exceed that range and be met by the end of 2013, HSBC said today.