HSBC's Q3 results published today showed a rise in revenue in almost major business line of its global banking and markets arm, but the unit’s pre-tax profits were slashed due to the £237m provision for the UK’s foreign exchange probe.
The bank is the latest to make a provision in relation to the regulator’s forex investigation, after Royal Bank of Scotland set aside £400m and Barclays allocated £500m. The provision at HSBC is explicitly to cover a probe into the forex market by the Financial Conduct Authority rather than other international regulators.
HSBC has also allocated a further £439m for redress over missold payment protection insurance, up 64 per cent from the £268m it set aside this time last year. The bank has now allocated more than £2.5bn in redress relating to PPI misselling.
In its interim management statement, published today, HSBC says:
“Discussions are ongoing with the FCA regarding a proposed resolution of their foreign exchange investigation with respect to HSBC Bank’s systems and controls relating to one part of its spot FX trading business in London.
“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 co-operate fully with regulatory and law enforcement authorities in the UK and other jurisdictions.”
Group pre-tax profits rose 2 per cent from £2.84bn in Q3 2013 to £2.89bn in the three months to 30 September. The rise in revenues was led by foreign exchange trading, which posted a 29% year-on-year jump, closely followed by a 28% hike in equities trading revenues.
HSBC Group chief executive Stuart Gulliver says:
“Despite the rising regulatory expectations, I am confident our business model remains sustainable and that we can deliver further value for our shareholders while meeting our obligations and protecting the future of HSBC.”
Graham Spooner, investment research analyst at The Share Centre, commented:
“HSBC reported a mixed set of results this morning, which were dominated by an increase in provisions and higher costs, largely as a result of regulatory demands. Overall the results were slightly below expectations with pre-tax profit for the period down 12%. However, positive performance in its global banking and commercial banking divisions helped offset some of this.
“We continue to suggest income seeking investors ‘buy’ for the longer term and build a holding over time by drip feeding into the stock. HSBC has remained a significant dividend payer and though progress may be slow, we believe the shares could be a better option than other banks. HSBC is viewed as more conservatively managed with a superior balance sheet and deposits.
“The CEO's three year plan includes a return on equity target of 12-15% which it aims to achieve through cutting significant parts of its US operations, along with other businesses around the world. The business plan also concentrates on organic growth from a few key areas that trade heavily with each other.”
In August, the company reported half-year pre-tax profits of £7.3bn, down 13 per cent from £8.4bn a year earlier, owing to “unprecedented” regulatory pressures.
