HSBC's (HBC) Earnings Weighed Down by Ongoing Money Laundering Investigations
Yesterday, banking giant HSBC (HBC: Charts, News) reported a sharp plunge in profit during its third quarter earnings report. London-based HSBC earned a pre-tax quarterly profit of $2.8 billion - barely half of the $5.5 billion it earned in the prior year quarter.
Excluding one-time charges, such as provisions set aside for ongoing criminal investigations, the company's profit came in a $5 billion - missing analyst expectations by a slim margin. On an earnings per share basis, HSBC earned 13 cents, down from 28 cents a year earlier. Daily Chart
HSBC has been rattled by money laundering allegations, which have been haunting the bank since July. The allegations state that HSBC turned a blind eye to money laundering activities in Mexico, the Middle East and Asia, which knowingly came from illegal sources, including drug cartels and terrorist organizations. HSBC is one of several British banks - which include Barclays (BCS
) and Standard Chartered - accused of money laundering and other market manipulating activities. During the quarter, HSBC was required to set aside $800 million related to the U.S. investigation, as well as investigations relating to the Bank Secrecy Act and Office of Foreign Assets Control. HSBC has already set aside $700 million earlier for fines. The $1.5 billion that HSBC has set aside for the money laundering investigation does not include legal costs. It was also required to add a provision of $353 million to repay customers who were inappropriately sold its Payment Protection Insurance product. CEO Stuart Gulliver updated investors regarding its legal troubles. "We are actively engaged in discussions with US authorities to try to reach a resolution, but there is not yet an agreement," Gulliver stated. "The US authorities have substantial discretion in deciding exactly how to resolve this matter. Indeed, the final amount of the financial penalties could be higher, possibly significantly higher, than the amount accrued." HSBC intends to distance itself from its legal troubles by selling some assets in Asia and Latin America, where the bank claims it does not have the scale to compete. However, Asia remains its most profitable segment, which continues to outpace its European and North American operations, which continue to post quarterly losses. Its Hong Kong business notably posted a pretax profit of $1.8 billion, a 40% increase over the prior year quarter. HSBC's global banking and markets division posted a pretax profit of $2.2 billion, which nearly doubled its profit a year earlier. HSBC's commercial banking segment also posted a 16% increase in pretax profit to $2.2 billion. HSBC has cut its staff by approximately 10%, or 266,700 employees, since the beginning of 2011. 15,000 employees left the company as HSBC sold off some assets. HSBC reduced costs by $500 million during the quarter, and expects to save $3.5 billion by the end of fiscal 2013. HSBC's management expressed concerns regarding larger macroeconomic issues in the near term, including the European debt crisis and the fiscal cliff in the United States. However, it expressed confidence that China and Latin America were beginning a rebound, fueled by strong local investment, which would aid the global economy. Shares of HSBC are trading near the top of its 52-week range of $35.72 to $50.46. The stock trades at 7.7 times forward earnings with a 5-year PEG ratio of 1.25. The stock pays a quarterly dividend of 45 cents per share - a 3.64% yield at current prices. Other News About HBC HSBC: A Bank in Good Company
The bullish case for scandal stricken HSBC. HSBC Probe Signals Big Bank Legal Crackdown
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Published on Nov 6, 2012
By Leo Sun