HSBC sets aside $1.3bn for fines as profits rise

HSBC has set aside £1.3bn for rigging fines after profits topped forecasts. Picture: PA

The provision was revealed as the group posted a better-than-expected 10 per cent jump in first-half profits to $13.6bn, helped by a strong performance in Asia, its largest market, and sold its Brazilian business for $5.2bn.

In November, the UK’s Financial Conduct Authority fined the bank £216.4m and slapped substantial penalties on four others after finding traders had attempted to manipulate forex rates. HSBC said yesterday that regulators and law enforcement agencies, including those in Brazil, the European Union, South Korea and the US, are continuing to investigate rigging in the market.

“There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters,” HSBC said.

“Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.”

HSBC continues to review whether to shift its headquarters away from the UK and Douglas Flint, the bank’s Scots-born chairman, said the board planned to make a decision by the end of the year.

George Osborne will be hoping his new tax arrangements, announced in his summer Budget, will be enough to keep HSBC in the UK. The Chancellor introduced a new 8 per cent surcharge on lenders’ profits, largely replacing the existing bank levy by 2020. Meanwhile, from 2021 the levy – which will be set much lower than its current rate – will only apply to UK rather than group balance sheets.

The levy in its earlier form had been seen as a key reason why HSBC, Europe’s biggest bank, said in April that it was considering relocation away from the UK and possibly back to Hong Kong where it originated. Brokers at Investec estimate the changes announced by Osborne will slash the lender’s bank levy charges of about $1.5bn this year by 80 per cent by 2021.

In the meantime, the group said plans to shift its UK retail operations from London to Birmingham were running to plan, with staff set to move into a new head office building in 2018.

The move follows new ring-fencing rules designed to separate this part of the bank – which will employs some 22,000 UK staff – from the riskier investment arm.

HSBC has also said it plans to rename the UK retail business, prompting speculation over a return of the Midland brand to the high street more than 20 years after the group took over that business in 1992.

The sale of the group’s operations in Brazil to Banco Bradesco for $5.2bn in cash was hailed as a “good step” by Cenkos analyst Sandy Chen, while Gary Greenwood at Shore Capital said: “This represents an attractive price, in our view, given that the business made a pre-tax loss of $111m in 2014 and a pre-tax profit of just $55m pre-tax profit in the first half. The disposal will also release $37bn of risk-weighted assets and should therefore be capital accretive.”

HSBC is planning to axe up to 25,000 jobs worldwide, including as many as 8,000 in the UK. The swingeing job cuts come as the bank seeks to deliver annual cost savings of about $4.5bn to $5bn by the end of 2017.

Chief executive Stuart Gulliver said: “Our performance in July was satisfactory. Our focus is on making significant progress in executing our strategic actions during the remainder of the year.”