HSBC provides for 'market rig' fine

HSBC provides for 'market rig' fine

HSBC set aside £236m to settle a probe into foreign exchange market rigging today – taking the bill for the scandal for British banks to more than £1.1bn.

The provision by the group would represent the largest penalty ever by the UK’s Financial Conduct Authority (FCA), overtaking previous fines over the Libor rate-rigging scandal.

HSBC is the first bank to specify a sum specifically in connection with Britain’s City regulator, saying the £236m sum covered its “estimated liability in connection with the ongoing foreign exchange investigation by the UK FCA”.

Barclays and Royal Bank of Scotland last week said they were putting aside £500m and £400m for the forex scandal amid investigations by regulators across the world.

The previous highest penalty, from the FCA’s predecessor the Financial Services Authority, saw UBS charged £160m over Libor rate-rigging in December 2012. Global penalties for the Swiss bank totalled £940m.

The Libor scandal has resulted in billions of pounds in fines for banks around the world but FCA chief executive Martin Wheatley has said the forex allegations are “every bit as bad”.

HSBC today said it was in talks with the FCA over a resolution of its forex probe “relating to one part of its spot FX trading business in London” with a “significant financial penalty” in prospect.

It said it was continuing to cooperate with regulatory and law enforcement agencies in the UK and other jurisdictions.

The announcement came as HSBC reported third quarter profits up 2% to £2.88bn, in what chief executive Stuart Gulliver described as a “period of continued progress”.

However the bank’s figures showed it continued to be hampered by fines for past misconducts and other settlements that wiped more than a billion dollars off its bottom line.

These included a £439m sum for customer redress in the UK, including £368m for the mis-selling of payment protection insurance (PPI).

It takes HSBC’s total bill for the PPI scandal to £2.53bn though this is lower than rivals such as Lloyds which has now put aside more than £11bn.

The redress bill for the latest quarter was higher than for the same period last year which HSBC said reflected an increase in the level of overall claims driven by claims management companies.

Meanwhile in the US, the bank has agreed a settlement of £344m with the Federal Housing Finance Agency to cover matters relating to the sale of mortgage bonds before the financial crisis.

HSBC is also the subject of an inquiry by French magistrates over the tax reporting requirements of some of the bank’s clients.

Its announcement on forex is the latest from a number of lenders reportedly in discussions to reach a settlement on the affair before the end of the year. The others are Barclays, RBS, Citigroup, JP Morgan Chase and UBS.

In the last week, Switzerland’s UBS has set aside £1.2bn and America’s Citigroup has taken a £375m hit to cover regulatory and litigation issues.

Commenting on today’s figures, Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “Stripping out the regulatory provisions, this is a strong operating quarter for HSBC.

“Unfortunately, the provisions cannot be ignored and the ongoing costs of PPI and the forex investigations are also joined by an additional US booking.”

HSBC said revenues in its commercial banking continued to grow, particularly in Hong Kong and the UK, while its performance in investment banking benefited from higher client activity in foreign exchange and equities.

Cost inflation in a number of markets meant operating expenses were 15% higher in the quarter but charges to cover bad debts were lower as a result of better economic conditions and changes to its loan portfolio.

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