HSBC Holdings Plc, Europe’s largest bank, agreed to pay $1.92 billion to settle U.S. probes of money laundering in the largest such accord ever.
The settlement includes a deferred prosecution agreement with the U.S. Department of Justice, the London-based bank said in an e-mailed statement today. HSBC also said it expects to complete an undertaking with the U.K. Financial Services Authority soon, without giving details.
Chief Executive Officer Stuart Gulliver’s attempts to reduce costs and improve profitability have been hurt by the U.S. probes and by compensation claims from U.K. clients. A Senate committee said in July that lax oversight by top HSBC executives gave terrorists and drug cartels access to the U.S. financial system. The settlement is the biggest reached in the U.S. over such allegations, topping the $619 million in penalties paid in June by the Netherlands’ ING Groep NV.
“This has removed an uncertainty, though it doesn’t clear the path completely for HSBC,” said Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd., which doesn’t hold HSBC shares. “Regulators have been tightening oversight of banks. Lenders like HSBC will have to continue to strengthen their compliance.”
HSBC rose 0.4 percent to 643.60 pence at 11:29 a.m. in London. The shares have gained 31 percent this year, giving the company a market value of 118.3 billion pounds ($190.2 billion).
HSBC has been in talks with U.S. regulators over allegations it laundered funds of sanctioned nations including Iran and Sudan, prompting Standard & Poor’s to question whether the lender is too big to be managed effectively.
In a deferred prosecution agreement, the government allows a target to avoid charges by meeting certain conditions -- including the payment of fines or penalties -- and by committing to specific reforms, either under the guidance of a monitor, or the creation of an internal compliance panel.
“We accept responsibility for our past mistakes,” Gulliver said in the statement. “We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes.”
HSBC’s forthcoming agreement with the FSA “is probably going to be a conduct specification of requirements,” said Ian Gordon, a London-based analyst at Investec Plc, who has a buy rating on the shares.