HSBC Reaches £1.2 Billion Settlement with US Authorities

on Dec 11, 2012
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On Tuesday 11 November HSBC (LON:HSBA), Europe’s largest bank by assets, agreed to a $1.92 billion (£1.2 billion) settlement with US authorities over its alleged involvement in money laundering.

In a statement the British lender admitted to a beakdown of controls and apologised. “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again.” wrote Stuart Gulliver, chief executive of the company.
According to news agency Bloomberg the settlement is the biggest ever reached in the US over similar allegations, topping the $619 million (£385 million) paid in June by ING Group, the biggest financial group in the Netherlands.

In its third-quarter financial report HSBC warned investors it would probably face criminal charges in the US with the costs of a settlement well exceeding the $1.5 billion (£933 million) it has set aside. The bank made an $800 million (v498 million) provision in the third-quarter adding to the already allocated $700 million (£435 million). Reuters quoted analyst Jim Antos of Mizuho Securities who said in a statement today that the extra $420 million (£261 million) HSBC will need to pay for the settlement is a “trivial” figure in terms of the company’s book value. “But in terms of real cash terms, that’s a huge fine to pay,” opined Antos, who maintained his “buy” rating on the stock.

The British lender has taken a number of steps to close the chapter on an embarrassing period, the result of a lengthy probe into the bank’s operations by US enforcement agencies as well as a scathing review issued by the US senate in July this year. HSBC has increased spending on anti-money laundering systems, ended business relationships, and clawed back bonus pays for many of its executives. It has also hired Stuart Levey, a former top US Treasury Department official, as its chief legal officer. The bank has agreed to cooperate fully and allow an independent monitor to evaluate its progress in improving its compliance procedures.

!m[Europe’s Biggest Bank Wishes to Close a Shameful Chapter in Its History](/uploads/story/1008/thumbs/pic1_inline.png)In a detailed report released in July by the Senate permanent subcommittee on investigations the bank was alleged to have hidden details from financial transactions linked to Iranian entities, which may have put HSBC in direct breach of US sanctions against the country. The bank was also said to have moved billions of dollars in cash from its Mexico unit to the US despite concerns raised by US authorities that such sums could only involve proceeds from illegal narcotics.

The bank’s shares fell by 0.30 percent to £6.3930 in the early morning session on the London Stock Exchange. The stock has appreciated by 30 percent so far this year.
**StanChart & Other Violators**
On Monday HSBC’s rival Standard Chartered agreed to pay $327 million (£203 million) settlement with US law enforcements for sanctions violations. The fine is supposedly the last to be paid by the British lender after it was already charged $340 million (£211 million) in August by the New York bank regulator. Other banks that have reached settlements over sanctions violations include Lloyds Banking Group, Credit Suisse, Barclays and ABN Amro Holding. In the US, JP Morgan, Citigroup and Wachovia have been alleged in money laundering activities or sanctions violations.

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