HSBC boss Stuart Gulliver apologised for “the mistakes of the past” yesterday, as the banking giant was forced to set aside nearly £1 billion to cover the cost of mis-selling claims and a money-laundering scandal in the US.
Gulliver admitted that the US episode had been “shameful and embarrassing” and may force it to shell out a minimum £445 million ($700m) in fines in relation to the US investigation.
The bank allowed rogue states and drugs cartels to launder billions of pounds through its US arm and the total fines and penalties could be “significantly higher”, he said.
It also set aside another £341m to cover mis-sold payment protection insurance (PPI) in the UK in the three months to June, bringing its total charge to date to £1.1bn. It took a further £150m hit for wrongly selling complex financial products known as interest-rate swaps to small businesses. In total, the bank will be forced to take £936m ($1.47bn) in writedowns.
The provisions ate into HSBC’s first-half underlying pre-tax profits, which fell 3 per cent to £6.7bn ($10.6bn) despite strong performances in Hong Kong, the rest of Asia-Pacific and Latin America.
Gulliver told a news conference: “I think we have had reputational damage. I have been with HSBC for 32 years, what happened in Mexico and the US is shameful, embarrassing.”
A recent US Senate report criticised a “pervasively polluted” culture at the bank as it said HSBC’s Mexican business had moved $7bn into its US operations between 2007 and 2008.
However, Gulliver said, while there had been negligence at HSBC regarding the money-laundering and other compliance issues, the internal culture was “not one of corrupt intent”.
It would take substantial time to repair the damage in public eyes,
however, he added.
A key change since he became chief executive last year was that the bank was now being run as a single global entity with consistent standards rather than a “federation of banks” run by country heads in the 88 countries HSBC operated in, he said.
“The firm clearly lost its way in this regard and it’s right that we apologise,” Gulliver said. Analysts said that, latest reputational shocks aside, underlying trading figures were decent.
Its investment banking arm increased profits 5 per cent to $5bn, while retail banking and wealth management profits more than doubled to $6.4bn from $3.1bn. Commercial banking profits rose $240m to $4.4bn.
Profit from Hong Kong and the rest of Asia-Pacific rose $1.3bn and accounted for nearly two our of every three dollars HSBC makes globally.
Despite the latest problems in the US, Gulliver said it was “unthinkable at this moment in time” for the group not to have a strong US presence.
Meanwhile, the UK business was forced $1.6bn (£1.1bn) into the red from a $2.1bn profit in the same six months of 2011 by its mis-selling provisions.
HSBC said that in Scotland its lending to small businesses and larger corporates rose 25 per cent in the period, with mortgage lending up 21 per cent. There was a 15.7 per cent rise in affluent customers.
An interim dividend of 18 cents (11.5p) was declared.