HSBC might have to hike its provisions for US fines for allowing money laundering, the bank said yesterday, as the final cost could rise well above the $1.5bn (£939m) it has set aside so far.
Poor controls meant Mexican drug dealers used HSBC – without the bank’s knowledge – to launder money. Chief executive Stuart Gulliver warned the final bill could be “substantially higher” than the amount set aside so far.
HSBC also set aside another $353m to cover payment protection insurance (PPI) compensation claims, and warned claims are not yet slowing.
Combined with a change in the value of its own debt, those costs dragged HSBC’s profits down to $3.5bn in the quarter, down more than 50 per cent from $7.2bn in the same period of 2011.
But the bank pointed to underlying profits to $5bn, up 125 per cent on the third quarter of last year.
Tougher cost controls helped – the bank has cut headcount by 21,300 from the end of 2011, to 266,700, and is set to chop more in the coming year.
And the bank is also cutting its risky lending. Interest margins fell as the bank pushed ahead with its new strategy of operating a low-risk business.
By selling its US credit cards business earlier this year HSBC cut average interest margins but also reduced its exposure to bad loans, improving its earnings figures as a result.
“We are changing the business mix to lower risk lending, which tends to be secured, reducing the net interest spread but gives a much reduced loan impairment charge,” said Gulliver.