HSBC has posted a 14% drop in profits for Q1 of 2016 following “extreme levels of volatility” in financial markets at the start of the year.
The banking giant’s profit before tax came in at $6.1 billion for Q1, down from $7.1 billion a year ago.
However, analysts had expected a far steeper fall in profits.
HSBC CEO Stuart Gulliver said the bank had been “resilient in tough market conditions”.
Adjusted pre-tax profits, including currency effects and one-off items, fell 18% to $5.4 billion.
HSBC cut almost a thousand jobs worldwide in Q1, leaving it with 254,212 full-time staff across 71 countries and territories.
Stuart Gulliver said HSBC was confident of hitting its $5 billion cost-cutting target by the end of 2017.
HSBC’s adjusted revenue for Q1 amounted to $13.9 billion, a 4% drop from the same time last year.
The bank also said the development of its Asian business was gaining momentum, “despite a challenging environment with key increases in market share in debt capital markets, China M&A and syndicated lending”.
Ahead of the results, analysts had warned HSBC might signal an end to its highly-valued progressive dividend, which delivers ever-increasing payouts.
However, HSBC maintained the progressive target and left its dividend unchanged from the same period last year at $0.10.
HSBC also announced that the $5.2 billion sale of its Brazil unit to banking giant Banco Bradesco received preliminary approval from competition regulators.
The leaked Panama Papers have revealed that international banking giants are helping clients to avoid tax by using complicated offshore arrangements.
HSBC, Credit Suisse and the Royal Bank of Scotland-owned Coutts Trustees have denied allegations.
The revelations in are based on more than 11 million documents leaked from the law firm Mossack Fonseca.
They name lenders said to have helped to set up structures making it hard for tax officials to pinpoint money flows.
They also name institutions alleged to have helped companies that were subject to international sanctions.
Rami Makhlouf is the cousin of Syria’s President Bashar al-Assad and has reported wealth of $5 billion.
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In 2008 the US Treasury imposed sanctions on him because it deemed him to be a “regime insider” and someone who “manipulated the Syrian judicial system and used Syrian intelligence officials to intimidate his business rivals”.
Mossack Fonseca continued to front six businesses – including one company called Drex Technologies – for Rami Makhlouf after the restrictions were put in place.
The files also show the Swiss branch of HSBC provided financial services for the company.
In 2010, two years after the sanctions were imposed, HSBC wrote to Mossack Fonseca saying it believed Drex Technologies was a company of “good standing”.
An internal email from Mossack Fonseca’s compliance department also suggests HSBC staff dealing with Drex Technologies knew who Rami Makhlouf was.
The email, dated February 17, 2011, says: “We have contacted HSBC who stated that they are very aware of the fact that Mr. Makhlouf is the cousin of the President of Syria.
“The HSBC compliance department of the bank not only in Geneva but also in their headquarters in London know about Mr. Makhlouf and confirm that they are comfortable with him.”
In response HSBC said: “We work closely with the authorities to fight financial crime and implement sanctions.
“Our policy is clear that offshore accounts can only remain open either where clients have been thoroughly vetted (including due diligence, ‘Know Your Customer’, source of wealth, and tax transparency checks), where authorities ask us to maintain an account for the purposes of monitoring activity, or where an account has been frozen based on sanctions obligations.”
The Panama leaks has revealed that more than 500 banks, including their subsidiaries and branches, registered nearly 15,600 shell companies with Mossack Fonseca.
Credit Suisse chief executive Tidjane Thiam said: “We do not condone structures for tax avoidance. Whenever there is a structure with a third party beneficiary we insist to know the identity of that beneficiary.”
Tidjane Thiam added: “We as a company, as a bank only encourage the use of structures when there is a legitimate economic purpose.”
A spokesman for Coutts Trustees said the bank followed the highest standards when complying with regulation.
He added: “We require all clients to be tax compliant as a condition of receiving our products and services and take a risk-based approach to identify and prevent tax evasion that relies upon extensive anti-money laundering systems and controls, including the requirement to understand the source of clients’ wealth.
“The provision of trust and administration services is an entirely legitimate and key aspect of wealth management and succession planning.”
Swiss bank HSBC has decided to close its private banking unit in India, where the increasing number of wealthy individuals has led to intense competition for their business.
Clients will be given the choice to move to HSBC’s retail unit.
The future of the wealth management unit’s 70 staff will be decided early next year, when it is due to close.
The move follows the lead of RBS and Morgan Stanley, which have sold their onshore private operations in Asia’s third-largest economy.
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Despite the growth in the number of multi-millionaires and a fast-growing wealth management market in India, it has been hard for foreign banks to attract business.
Indian companies can appeal to investors in small as well as large cities. They are not weighed down by high costs and international regulatory restrictions.
In June, HSBC CEO Stuart Gulliver announced the bank was going to cut thousands of jobs from its global workforce as part of his restructuring program.
Since taking over his role in 2011, Stuart Gulliver has sold scores of businesses and taken on more compliance staff to deal with the increased regulatory oversight of the industry.
An HSBC spokesperson in India said: “This marks further progress in the HSBC group strategy to simplify business and deliver sustainable growth.”
HSBC employs about 32,000 people in India, where it offers corporate, retail and investment banking services.
Former HSBC employee Herve Falciani has been convicted of economic espionage and sentenced to five years in jail in absentia, a Swiss court has ruled.
Herve Falciani was on trial for leaking bank data that led to tax evasion probes worldwide against prominent clients with accounts in Switzerland.
He did not attend the trial and because France does not extradite its own citizens, it is unlikely he will serve the sentence.
Herve Falciani told AP news agency he had “no reaction” to the sentencing.
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He had refused to travel from France to appear before the Swiss Federal Tribunal in Bellinzona for a trial that began last month.
Herve Falciani was charged with illegally obtaining data, economic espionage, breach of business confidentiality and breach of bank secrecy while working at a Swiss HSBC subsidiary between 2006 and 2008.
The court rejected all the charges except for one alleging a violation of economic intelligence, for having made public information about foreign entities in Lebanon, France, Germany, and the UK.
HSBC, which argued that Herve Falciani had illegally downloaded details from clients and accounts, welcomed the decision against its former employee, who was an IT worker at HSBC Private Bank (Suisse).
“HSBC has always maintained that Falciani systematically stole clients’ information in order to sell it for his own personal financial gain,” the bank said in a statement.
British bank HSBC is planning to cut 8,000 jobs in the UK as it tries to reduce costs and simplify its business.
Europe’s biggest bank has 48,000 workers in the UK and will make cuts in both its retail and investment banking operations.
A total of 25,000 jobs could be axed worldwide, meaning close to 10% of HSBC’s 266,000 workers will go.
HSBC will also ring-fence its UK operations and sell businesses in Turkey and Brazil, it said on June 9.
The news comes ahead of a presentation that HSBC CEO Stuart Gulliver will give to investors and analysts in his second major strategy plan since taking up the role in 2011.
In a statement, Stuart Gulliver said: “We recognize that the world has changed and we need to change with it. That is why we are outlining the following… strategic actions that will further transform our organization.”
The 10-point plan aims to cut costs by up to $5 billion and increase investment in Asia – particularly in China.
Stuart Gulliver: “Asia [is] expected to show high growth and become the centre of global trade over the next decade.
“Our actions will allow us to capture expected future growth opportunities.”
HSBC’s Hong Kong-listed shares rose almost 1% following the announcement, but remain down 9% over the past 12 months.
The bank said it would make a decision on whether to move its headquarters out of the UK by the end of the year.
There has been speculation that HSBC may relocate its headquarters to Hong Kong since it announced the review in April.
HSBC has reported a 17% drop in profit to $18.7 billion for 2014.
The bank has said 2014 was a “challenging year” and blamed the negative effect of fines and settlements and UK customer redress for the sharp drop.
The results follow allegations, which emerged earlier this month, that HSBC had helped people evade UK tax using hidden HSBC accounts in Geneva.
HSBC CEO Stuart Gulliver saw his overall pay for the year fall to £7.6 million ($11.7 million) from £8.03 million ($12.3 million) in 2013.
On Monday, HSBC reiterated its recent apology for the conduct of its Swiss private bank, saying the historical practices and behavior were “unacceptable”.
“We deeply regret and apologize for the conduct and compliance failures highlighted, which were in contravention of our own policies, as well as expectations of us,” it said.
HSBC said restoration of trust in the industry “remains a significant challenge as further misdeeds are uncovered but it is a challenge we must meet successfully”.
“When commentators extrapolate instances of control failure or individual misconduct to question the culture of the firm, it strikes painfully at the heart of our identity,” it added.
The revelations come after Stuart Gulliver himself was dragged into the Swiss tax furor on February 22, with HSBC confirming he uses a Swiss bank account to hold his bonuses.
HSBC said he opened the account in 1998 when he was living and working in Hong Kong and full tax was paid in Hong Kong on the bonus payments.
Offices of the Geneva subsidiary of HSBC bank are being raided by Swiss police in an inquiry into alleged money-laundering.
Prosecutors said they were investigating HSBC Private Bank (Suisse) and “persons unknown for suspected aggravated money laundering”.
The investigation could be extended to people suspected of committing or participating in money laundering.
HSBC said it was “co-operating with the Swiss authorities.”
The police raid comes more than a week after allegations first emerged that HSBC’s Swiss private bank may have helped wealthy clients evade tax.
HSBC published a full-page advert in several weekend papers containing an apology over the claims.
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The chief executive of HSBC’s Swiss private bank, Franco Morra, said last week it had shut down accounts from clients who “did not meet our high standards”.
Franco Morra added the revelations about “historical business practices” were a reminder that the old business model of Swiss private banking was no longer acceptable.
HM Revenue & Customs was given the leaked data in 2010 and has identified 1,100 people who had not paid their taxes.
Last week, HSBC admitted that it was “accountable for past control failures”, but said it had now “fundamentally changed”.
“We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today,” it added.
HSBC faces criminal investigations in the US, France, Belgium and Argentina, but not in the UK, where the bank is based.
The bank said it was “co-operating with relevant authorities”.
Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities.
While tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.
According to new reports, HSBC helped wealthy clients across the world evade hundreds of millions of dollars worth of tax.
Accounts from 106,000 clients in 203 countries were leaked by whistleblower Herve Falciani in 2007.
HSBC admitted that some individuals took advantage of bank secrecy to hold undeclared accounts. But it said it has now “fundamentally changed”.
The banking giant now faces criminal investigations in the US, France, Belgium and Argentina.
HSBC said it is “co-operating with relevant authorities”. However, in the UK, where the bank is based, no such action has been taken.
Offshore accounts are not illegal, but many people use them to hide cash from the tax authorities. And while tax avoidance is perfectly legal, deliberately hiding money to evade tax is not.
India’s finance minister Arun Jaitley has said that all Indian names on the list will be investigated, although he cautioned that some accounts might be legitimate. A current inquiry looking into more than 600 people who hold accounts overseas, will now be widened to look into the current list of names.
Photo Reuters
The French authorities concluded in 2013 that 99.8% of their citizens on the list were probably evading tax.
The thousands of pages of data were obtained by the French newspaper Le Monde. In a joint investigation, the documents have now been passed to the International Consortium of Investigative Journalists, The Guardian and more than 50 media outlets around the world.
HSBC did not just turn a blind eye to tax evaders – in some cases it broke the law by actively helping its clients.
The bank gave one wealthy family a foreign credit card so they could withdraw their undeclared cash at cashpoints overseas.
HSBC also helped its tax-dodging clients stay ahead of the law.
When the European Savings Directive was introduced in 2005, the idea was that Swiss banks would take any tax owed from undeclared accounts and pass it to the taxman.
It was a tax designed to catch tax evaders. But instead of simply collecting the money, HSBC wrote to customers and offered them ways to get round the new tax.
HSBC denies that all these account holders were evading tax.
Meanwhile, HSBC said it has completely overhauled its private banking business and has reduced the number of Swiss accounts by almost 70% since 2007.
In a statement, the bank said: “HSBC has implemented numerous initiatives designed to prevent its banking services being used to evade taxes or launder money.”
HSBC said it now puts compliance and tax transparency ahead of profitability.
HSBC Private Bank’s Brussels branch is being accused of helping wealthy Belgians to avoid taxes.
Belgian prosecutors allege that hundreds of clients – including diamond dealers in Antwerp – moved money to offshore tax havens with the help of the bank.
They said it resulted in hundreds of millions of euros in lost tax revenue.
In August, HSBC warned that the penalties in relation to such allegations “could be significant”.
In a statement, Belgian authorities accused HSBC of “having knowingly eased and promoted fiscal fraud by making offshore companies available to certain privileged clients”.
These companies, which are based in Panama and the Virgin Islands, exist for the sole purpose of tax evasion, they added.
Over 1,000 taxpayers are alleged to have been involved in the fraud, which saw funds amounting to several billion dollars transferred out of Belgium since 2003.
Responding to the announcement by Belgian authorities, HSBC said it had been notified of the investigation, and of a similar investigation by French authorities, and that the bank would “continue to cooperate to the fullest extent possible”.
Banks operating in Switzerland are bound by the European Union Savings Directive to counter cross-border tax evasion, by collecting information on the savings income foreign residents receive outside their resident state.
Belgian authorities also published emails and other correspondence between HSBC and Belgian clients, which appear to show the bank offering tax evasion services.
Prosecutor Michel Claise accused HSBC of “fraud, money laundering, criminal association and illegal exercise of the profession of financial intermediary”.
In October, Belgian police raided the homes of approximately 20 people with private bank accounts at HSBC’s Swiss subsidiary, to gather evidence against the lender.
HSBC has been subject to a series of fines for misconduct in recent years, most recently in relation the manipulation of foreign currency exchange rates.
The US Federal Deposit Insurance Corporation (FDIC) has sued 16 banks for allegedly manipulating the London interbank offered rate (LIBOR).
The LIBOR rate is used to set trillions of dollars of financial contracts, including mortgages and financial transactions around the world.
The regulator said the manipulation caused substantial losses to 38 US banks which were shut down during and after the 2008 financial crisis.
The sued banks include Barclays, HSBC, Citigroup and Royal Bank of Scotland.
The British Bankers’ Association (BBA) has also been sued by the FDIC.
“BBA participated in the alleged scheme to protect the revenue stream it generated from selling Libor licenses and to appease the Panel Bank Defendants that were members of the BBA,” it was quoted as saying by the AFP news agency.
The FDIC has sued 16 banks for allegedly manipulating the LIBOR
The FDIC alleged that the banks mentioned in its lawsuit rigged the rate from August 2007 to at least mid-2011.
Other banks named in the lawsuit include Bank of America, JPMorgan Chase, Deutsche Bank, Lloyds Bank, Credit Suisse, UBS, and Rabobank.
LIBOR is the average rate at which banks lend money to one another and is decided on a daily basis.
Most of the world’s biggest banks contribute estimates to form the LIBOR.
But there have been allegations that some have looked to profit from it by understating or overstating their submissions.
Over the past two years, regulators across the globe have been investigating the manipulation of the rate and there have been $3.7 billion in fines to date.
A string of international banks and brokers have faced both criminal and civil penalties for their involvement in the scandal.
Some banks have also been found to have understated their submissions in the period during and after the financial crisis.
HSBC has announced a 30% profit rise in Q3 2013, boosted by a strong performance in the UK and Hong Kong.
Reported pre-tax profit was $4.5 billion, compared with $3.4 billion for the same period a year ago, the bank said.
HSBC’s home markets of the UK and Hong Kong were responsible for more than half of the group’s profits.
The bank also confirmed it was being investigated as part of a global probe into currency trading manipulation.
Barclays, RBS, Citigroup, Deutsche Bank and UBS have already confirmed that regulators, including the UK’s Financial Conduct Authority, have been in contact with them in relation to suggestions that currency markets could have been rigged.
HSBC has announced a 30 percent profit rise in Q3 2013
“We see reasons for optimism with some evidence of a broadening recovery,” group chief executive Stuart Gulliver said on the outlook for the bank.
Operating expenses fell by $700 million to $9.6 billion during the period, but the bank said that was mainly due to the absence of one-off costs from last year.
Underlying costs were up on the year, which HSBC blamed on investments, wage inflation and regulatory-related costs.
Stuart Gulliver is aiming to streamline the bank’s operations by focusing on high-growth markets in Asia. In October, it sold its Panama business for an estimated $1.1 billion gain.
HSBC has closed or sold 12 non-core businesses since the start of the year.
“Hong Kong continues to benefit from its close economic relationship with mainland China. We remain well positioned to capitalize on improving economic conditions in these markets,” added Stuart Gulliver.
HSBC, which was hit with a $1.9 billion US fine for money laundering last year, is facing fresh accusations of illegal activity in Argentina.
Argentina has alleged that HSBC used “fake receipts” to facilitate money laundering and tax evasion, and launder 392 million pesos ($77 million).
The country’s tax authority said it had filed criminal charges against HSBC.
HSBC said that it would cooperate with the investigation, adding that the allegations were “of great concern”.
“We are committed to working cooperatively with authorities to ensure a thorough review and appropriate resolution of the matter,” said Lyssette Bravo, a spokeswoman for HSBC.
Last year, HSBC agreed to pay US authorities $1.9 billion in a settlement over money laundering, the largest paid in such a case.
Argentina laid out its case against HSBC late on Monday.
“On the basis of what’s been investigated so far, in six months we’ve recorded 392 million pesos in fraudulent transactions, generated by evasion and money laundering,” said Ricardo Echegaray, head of Argentina’s tax agency.
Ricardo Echegaray added that HSBC also helped clients evade taxes on an additional 224 million pesos.
“We hope to recover what is due and see the courts apply an appropriate penalty,” he said.
HSBC is facing fresh accusations of illegal activity in Argentina
Money laundering is the process of disguising the proceeds of crime so that the money cannot be linked to the wrongdoing.HSBC, which has previously admitted to having poor money laundering controls, has been taking steps to tighten its operations.
Last year, the banking giant said that it had spent $290 million on improving its systems to prevent money laundering.
At the same time, HSBC also appointed a former US official, Bob Werner, to work as its head of financial crime compliance, a new position the bank has created.
The bank said that he will be responsible for beefing up its anti-money laundering and sanctions compliance systems.
Bob Werner was previously the head of the US Treasury’s Office of Foreign Assets Control, the agency responsible for enforcing the US sanctions on countries, including Iran.
HSBC is to pay US authorities $1.9 billion in a settlement over money laundering, the largest paid in such a case, the bank has confirmed.
A US Senate investigation said the UK-based bank had been a conduit for “drug kingpins and rogue nations”.
Money laundering is the process of disguising the proceeds of crime so that the money cannot be linked to the wrongdoing.
HSBC admitted having poor money laundering controls and apologized.
“We accept responsibility for our past mistakes,” said HSBC group chief executive Stuart Gulliver in a statement.
“We have said we are profoundly sorry for them, and we do so again.”
The bank said it had spent $290 million on improving its systems to prevent money laundering and clawed back some bonuses paid to senior executives in the past.
It also said it expected to reach an agreement with the UK’s Financial Services Authority shortly.
Last month it announced it had set aside $1.5 billion to cover the costs of any settlement or fines.
HSBC is to pay US authorities $1.9 billion in a settlement over money laundering
The news followed the announcement of a similar but much smaller settlement with UK-based Standard Chartered bank, which will pay $300 million in fines for violating US sanctions.
The cases are seen as part of a crackdown on money laundering and sanctions violations being led by federal government agencies and New York state authorities.
The settlement had been widely expected following a report by the US Senate, published earlier this year, that was heavily critical of HSBC’s money laundering controls.
The report alleged that:
HSBC in the US had not treated its Mexican affiliate as high risk, despite the country’s money laundering and drug trafficking challenges
The Mexican bank had transported $7 billion in US bank notes to HSBC in the US, more than any other Mexican bank, but had not considered that to be suspicious
It had circumvented US safeguards designed to block transactions involving terrorists drug lords and rogue states, including allowing 25,000 transactions over seven years without disclosing their links to Iran
Providing US dollars and banking services to some banks in Saudi Arabia despite their links to terrorist financing
In less than four years it had cleared $290 million in “obviously suspicious” US travellers’ cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business
The report suggested HSBC accounts in Mexico and the US were being used by drug barons to launder money.
“The banks became very overextended, not just in lending on property, which we all know about, but in this case, for example, buying businesses in Mexico about which, it turned out, they knew too little,” said Sir John Gieve, former deputy governor of the Bank of England.
The Senate report also said HSBC regularly circumvented restrictions on dealings with Iran, North Korea, and other states subject to US sanctions.
HSBC has announced it has appointed a former US official to work as its head of financial crime compliance, which is a new position.
Bob Werner was previously the head of the US Treasury’s Office of Foreign Assets Control (OFAC) – the agency responsible for enforcing the US sanctions on countries including Iran.
He will be responsible for beefing up HSBC’s anti-money laundering and sanctions compliance systems.
It is unclear what impact the case will have on HSBC’s business. The bank is the biggest in Europe by market capitalization, and made pre-tax profits of $12.7 billion for the first six months of 2012.
A US Senate probe has disclosed how lax controls at HSBC, Europe’s largest bank, left it vulnerable to being used to launder dirty money from around the world.
The report into HSBC, released ahead of a Senate hearing on Tuesday, says huge sums of Mexican drug money almost certainly passed through the bank.
Suspicious funds from Syria, the Cayman Islands, Iran and Saudi Arabia also passed through the British bank.
HSBC said it expected to be held accountable for what went wrong.
The damning report comes at a difficult time for the British banking sector, which is having its standards and practices scrutinized by regulators and policymakers.
Critics say the current furor over the manipulation of the Libor inter-bank interest rate is the latest example of a banking system in need of fundamental reform.
US Senate report into HSBC says huge sums of Mexican drug money almost certainly passed through the bank
The report also concludes that the US bank regulator, the Office of the Comptroller of the Currency, failed to properly monitor HSBC.
The report into HSBC was issued by the Senate Permanent Subcommittee on Investigations, a Congressional watchdog that looks at financial improprieties.
The year-long inquiry, which included a review of 1.4 million documents and interviews with 75 HSBC officials and bank regulators, will be the focus of a hearing on Tuesday at which HSBC executives are scheduled to testify.
These will include HSBC’s chief legal officer Stuart Levey, who joined the bank in January and was previously one of the top officials on terrorism and finance at the US Treasury Department.
In a memo released ahead of the hearing, HSBC chief executive Stuart Gulliver said: “It is right that we will be held accountable and that we take responsibility for fixing what went wrong.”
“As well as answering the subcommittee’s questions, we will explain the significant changes we have already made to strengthen our compliance and risk management infrastructure and culture,” he said.
A separate HSBC statement said its executives will offer a formal apology at the hearing.
“We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong,” the bank said.
Senator Carl Levin, chairman of the sub-committee, spoke of a “polluted” system that allowed black-market funds to move through the US banking system.
In 2010, Wachovia agreed to pay $160 million as part of a Justice Department probe that examined Mexican transactions.
Last month, ING agreed to pay $619 million to settle US government allegations that it violated US sanctions against Cuba and Iran.
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