UK: HSBC latest to set aside extra cash for mis-sold PPI

The rising tide of financial penalties among Britain’s banks continued to swell today as HSBC revealed additional charges for money-laundering breaches and mis-sold PPI.

The group said it had set aside an additional 800 million US dollars (�500 million) to cover fines from US authorities which accused the bank of inadvertently allowing rogue states and drug cartels to launder billions of pounds through its US arm.

The lender has now set aside 1.5 billion US dollars (�935 million) to cover the potential scandal but warned no agreement has been made and the cost could be “higher, possibly significantly higher”.

Meanwhile, HSBC said it had taken an additional 353 million US dollars (�220 million) to cover compensation, mainly for mis-selling payment protection insurance (PPI), pushing its total PPI bill to more than two billion US dollars (�1.2 billion).

The additional penalties, as well as the impact of the value of its own debt, triggered a 51% slide in the bank’s reported pre-tax profits for the three months to September 30 of 3.5 billion US dollars (�2.2 billion).

The third-quarter results season has been dominated by the escalating provisions made by banks to cover mis-sold PPI and comes hot on the heels of the Libor-fixing scandal.

Barclays, Lloyds Banking Group and Royal Bank of Scotland all raised their charges for PPI, while RBS said it hoped to follow Barclays and settle its own Libor investigation soon.

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The US Senate findings against HSBC, which accused the bank of ignoring warnings and breaching safeguards that should have stopped the laundering of money from Mexico, Iran and Syria, led to the resignation of head of compliance David Bagley.

The revelations heaped pressure on Business Minister Lord Green, who was chairman of HSBC at the time the failings took place.

Group chief executive Stuart Gulliver warned: “We are actively engaged in discussions with US authorities to try to reach a resolution, but there is not yet an agreement.

“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.”

Like Barclays, Lloyds and RBS before it, the mounting charges threatened to overshadow stronger underlying progress, with pre-tax profits, excluding one-off provisions, more than doubling to 5 billion US dollars (�3.1 billion) in the third quarter.

The improvement was driven by a strong performance in its investment banking arm Global Banking and Markets as conditions in the eurozone stabilised.

HSBC reduced bad-debt charges in the quarter to 1.7 billion US dollars (�1.1 billion) from 2.4 billion US dollars (�1.5 billion), although its total exposure to the troubled eurozone economies of Spain, Italy, Portugal, Ireland, Greece and Cyprus was slightly higher at 37.3 billion US dollars (�23.3 billion), compared to 37.1 billion US dollars (�23.1 billion).