HSBC latest bank to take hit on forex market probe

HSBC set aside hundreds of millions of pounds yesterday to cover a cross-border regulatory investigation into the alleged manipulation of foreign exchange markets that has so far cost the industry £1.5 billion.

The £236m earmarked for the scandal by HSBC is lower than the £500m provision made by Barclays and £400m by Royal Bank of Scotland last week in connection with the Financial Conduct Authority’s probe into the alleged rigging of the $5.3 trillion (£3.3tn)-a-day global currency market.

The FCA and Britain’s Serious Fraud Office are both investigating the affair, as well as the US department of justice and other American authorities. Six banks are reported to be in talks over a settlement, with Switzerland’s UBS setting aside Swf1.8bn (£1.2bn) and Citigroup of the US taking a $600m hit.

Iain Mackay, HSBC’s Scots-born finance director, said the British regulator was the only one it was holding detailed talks with.

“There are a number of jurisdictions that have expressed interest in this topic and we are working closely with authorities in each of those to work through these issues,” Mackay said.

HSBC, Europe’s biggest bank by market value, provided $1.8bn in total in its third-quarter trading update for fines, settlements and an extra £439m to its bill for compensation related to mis-selling loan insurance in the UK.

The group also said it had been summoned to appear before French magistrates over whether its Swiss private bank had helped French citizens evade tax, and also made a $550m settlement with a US agency over allegations the parent bank mis-sold mortage-backed securities.

That raft of provisions failed to stop the bank reporting a 2 per cent lift in Q3 statutory profits to $4.6bn to end-September, helped by an improving position on bad debts.

“If you strip out the regulatory provisions it’s a strong operating quarter – unfortunately you can’t strip out the provisions,” Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said.

Stuart Gulliver, HSBC’s chief executive, said: “Excluding significant items, we increased underlying profit before tax in all of our global businesses.

“Revenue continued to grow in commercial banking, dominated by growth in our home markets of Hong Kong and the United Kingdom.”

Gulliver added that loan impairment charges were lower “reflecting the current economic environment and the beneficial changes to our portfolio since 2011”.

The City was also impressed with what one analyst called a “remarkably resilient” revenue contribution from HSBC’s investment banking arm, up 11 per cent year-on-year at $4.7bn despite the pound’s weakness against the dollar.

HSBC said the investment bank benefited from higher client activity in both equities and foreign exchange transactions.

Group operating expenses rose 15 per cent in the quarter, partly to meet the bank’s risk and compliance commitments.

The stock has outperformed the market over the past six months, although over the last 12 months it is down 6 per cent compared to a 3 per cent dip in the FTSE 100 index.

One banking analyst said the general market view remained “tainted by the regulatory provisions” , but that the stock’s dividend yield of 4.8 per cent was “clearly attractive” at a time of historically low interest rates.

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