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HSBC to Pay $1.92 Billion to Settle Money-Laundering Prob


HSBC Holdings Plc, Europe’s largest bank, agreed to pay $1.92 billion to settle U.S. probes of money laundering in the largest such accord ever.

The settlement includes a deferred prosecution agreement with the U.S. Department of Justice, the London-based bank said today in a statement. HSBC expects to complete an undertaking with the U.K. Financial Services Authority soon, it said, without providing specifics.

Chief Executive Officer Stuart Gulliver’s attempts to reduce costs and improve profitability have been hurt by the U.S. probes and by compensation claims from U.K. clients. A Senate committee said in July that lax oversight by top HSBC executives gave terrorists and drug cartels access to the U.S. financial system.

“This has removed an uncertainty, though it doesn’t clear the path completely for HSBC,” Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd., said by telephone today, adding that his company doesn’t hold HSBC shares. “Regulators have been tightening oversight of banks. Lenders like HSBC will have to continue to strengthen their compliance.”

In a deferred prosecution agreement, the government allows a target to avoid charges by meeting certain conditions — including the payment of fines or penalties — and by committing to specific reforms, either under the guidance of a monitor, or the creation of an internal compliance panel.

Tops ING

The settlement is the biggest reached in the U.S. over such allegations, topping the $619 million in penalties paid in June by ING Groep NV, the biggest Dutch financial-services company.

“We accept responsibility for our past mistakes,” Chief Executive Officer Stuart Gulliver said in the statement. “We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes.”

Standard Chartered Plc, which like HSBC makes most of its profit in Asia, said yesterday it would pay a further $327 million to settle regulators’ allegations that transactions with Iranian clients violated U.S. sanctions. It agreed to pay $340 million to the New York Department of Financial Services on Aug. 14.

Shares of HSBC rose 0.2 percent to HK$79.60 as of 3:11 p.m. in Hong Kong trading today, extending gains for this year to 35 percent. Standard Chartered advanced 0.5 percent to HK$185.30.

Previous Provision

HSBC made an $800 million provision in the third quarter to cover a potential settlement, adding to $700 million it had already earmarked. The bank said on Nov. 5 it will probably face criminal charges from U.S. anti-money-laundering probes and the cost of a settlement may “significantly” exceed the $1.5 billion it has set aside.

Gulliver, who became CEO in January 2011, is seeking to cut costs by $2.5 billion to $3.5 billion and revive profit by selling assets to focus on those emerging economies in which the bank has a greater market share. The savings will probably exceed that range and be achieved by the end of 2013, HSBC said last month.

The bank said Dec. 5 it will sell its stake in China’s Ping An Insurance (Group) Co. to Thai billionaire Dhanin Chearavanont for $9.4 billion, giving it a $2.6 billion profit.

HSBC has been in talks with U.S. regulators over allegations it laundered funds of sanctioned nations including Iran and Sudan. The probes prompted Standard & Poor’s to question whether the lender is too big to be managed effectively.

Asian Income

The bank generated 64 percent of its first-half pretax income in the Asia Pacific region, up from 47 percent five years earlier, according to data compiled by Bloomberg. At Standard Chartered, the share slipped to 63 percent from 65 percent.

Standard Chartered in August was accused by Benjamin Lawsky, head of the New York Department of Financial Services, of helping Iran launder about $250 billion in violation of federal laws, keeping false records and handling lucrative wire transfers for Iranian clients. The settlement was the largest paid to an individual regulator as part of a money-laundering accord.

The bank will pay $100 million to the Federal Reserve and $227 million to the Department of Justice and the Manhattan District Attorney. The settlement includes a $132 million fine to the Treasury Department’s Office of Foreign Assets Control.

Standard Chartered

Standard Chartered entered into a deferred prosecution agreement with the Justice Department whereby it will forfeit $227 million of funds tied to the illegal transactions, according to court records filed in the Washington federal court.

As part of that agreement, the U.S. charged the bank with one count of conspiring to violate the International Emergency Economic Powers Act. That charge will be dismissed after two years if Standard Chartered abides by the terms of the agreement, according to court papers.

(Source: Bloomberg)