HSBC bank on Monday set aside $378 million (302 million euros) for a potential fine in Britain to settle allegations of foreign exchange market rigging, as it posted mixed third-quarter earnings. The Asia-focused lender said in a results statement that it had made a "provision of US $378m relating to the estimated liability in connection with the ongoing foreign exchange investigation" by Britain's Financial Conduct Authority (FCA) regulator.
The banking titan warned that a "significant" penalty was likely, adding that talks were ongoing with the watchdog. The news comes after rivals Barclays and Royal Bank of Scotland (RBS) last week made huge provisions for possible costs and penalties arising from several probes into suspected price-rigging in the foreign exchange market. Barclays - which was at the centre of the 2012 Libor rate-rigging scandal - and RBS have set aside £500 million (640 million euros) and £400 million respectively for the forex affair, which is being probed by regulators around the world. "Discussions are ongoing with the UK FCA regarding a proposed resolution of their foreign exchange investigation with respect to HSBC Bank plc's systems and controls relating to one part of its spot FX (foreign exchange) trading business in London," HSBC said on Monday.
"Although there can be no certainty that a resolution will be agreed, if one is reached, the resolution is likely to involve the payment of a significant financial penalty. "We continue to cooperate fully with regulatory and law enforcement authorities in the UK and other jurisdictions." HSBC added that its net profits or earnings after tax rose seven percent to $3.431 billion in the three months to September 30 from a year earlier, boosted by falling impairments.
However, adjusted pre-tax profits sank 12 percent to $4.4 billion in the third quarter, as it set aside around $1.7 billion to cover a series of one-off charges. HSBC also took a $701 million provision to compensate customers for a mis-sold insurance product and $550 million for a settlement with the Federal Housing Finance Authority relating to the sale of mortgage bonds before the financial crisis. In addition, restructuring costs were $68 million.
Total revenues were almost flat at $15.575 billion in the period. HSBC is meanwhile also the subject of an inquiry by French magistrates over the tax reporting requirements of some of the bank's clients. "The third quarter was a period of continued progress," said chief executive Stuart Gulliver, adding that the bank had maintained a strong balance sheet and robust capital position.
Nearing midday, HSBC's share price slid 1.23 percent to 631.6 pence on London's FTSE 100 index of top companies, which was 0.44 percent lower at 6,517.88 points. "Stripping out the regulatory provisions, this is a strong operating quarter for HSBC," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers. "Unfortunately, the provisions cannot be ignored," he added.