HSBC spends more on fighting financial crime as profits fall by 19%


HSBC has been hiring more staff to fight financial crime in an attempt to overcome a series of scandals which have plagued it in recent years, The Guardian reports.

Britain’s biggest bank said its spending on “regulatory programmes and compliance” rose 12% to $800m (£620m) in the first three months of 2017 as it announced a 19 per cent fall in first-quarter profits to £3.8bn.

A deferred prosecution agreement – put in place alongside a £1.2bn fine imposed in 2012 by US authorities for poor controls that allowed Mexican drug traffickers to make deposits – has put a focus on HSBC’s attempts to improve its resilience to financial crime.

Under this DPA, the US lawyer Michael Cherkasky, appointed as a monitor, has raised questions about the speed of change at HSBC. Iain Mackay, the HSBC finance director, said there was a “very sharp focus” on meeting the requirements of the DPA, which runs until the end of this year.

In a reminder of one issue facing the bank, the Spanish high court announced after the company had published its results on Thursday that it would question seven former HSBC executives as part of an investigation into revelations of tax avoidance schemes run in its Swiss arm from leaks by Hervé Falciani.

The files Falciani leaked allowed the Guardian and other publications to reveal how the Swiss arm had helped wealthy customers dodge tax.

According to reports, on which HSBC declined to comment, the court is widening the investigation to study the flow of funds from its Swiss private bank into other international banks.

Mackay indicated the close oversight of the bank linked to the DPA may have an impact on its ability to release capital from its US operations, which have just paid a dividend to the parent company for the first time in 10 years. “It would be unusual if the DPA’s existence did not reflect on the capital position,” he said.

But the bank’s shares rose by 3 per cent to 667p as investors focused on the increase in underlying profits to $4.6bn, a $1bn share buyback and attempts to cut costs from a business that has operations in 70 countries and more than 235,000 staff.

There was also a $210m provision to pay compensation for payment protection insurance, taking the total cost of the scandal for HSBC to $5.3bn.

The bank said there had been an increase in spending on crime controls that “reflected the continued implementation of our global standards programme to enhance financial crime risk controls and capabilities, and meet external commitments”.

Stuart Gulliver, the HSBC chief executive, said an additional 1,800 staff had been hired since the end of 2016 for its compliance operation, which employs 6,000 people.

“This is a good set of results,” he said. “The increase in adjusted profit was driven by strong performances in three of our four global businesses.”

Gulliver is in the final 12 months of a three-year programme announced in 2015 to achieve global cost savings of $5bn, cut 25,000 jobs and “pivot” the business towards Asia. The bank said it was on track to achieve the targets and had benefited from the rise in US interest rates to 1 per cent.

Gulliver is expected to be replaced as chief executive after the new chairman, Mark Tucker, takes over on 1 October, and becomes the first outsider to chair the bank in its history under a boardroom overhaul demanded by shareholders.

Since he became chief executive in 2011, Gulliver has pulled out of 18 countries in an attempt to refocus and derisk the bank, but also faced revelations that he had in the past been paid through a Panamanian company. Gulliver said he did this so that his taxed bonus earnings to remain private from his colleagues.

HSBC repeated that it expected to transfer up to 1,000 staff to its Paris office as a result of Brexit. Gulliver said the plan was prepared on the basis of a “hard Brexit”.

The bank had reported a slump in profits last year and Laith Khalaf, a senior analyst at Hargreaves Lansdown, said on Thursday: “The dial has twitched in the right direction at HSBC, though the bank needs to sustain this performance for more than one quarter to convince shareholders it’s on the up and up.”