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Growing costs for HSBC's laundry list of problems

November 5, 2012: 5:32 AM ET

HSBC reported Monday that it turned a profit of $5 billion in the third quarter, a figure held down by the scandal-plagued bank's efforts to absorb a series of fines and penalties.

The London-based firm set aside $800 million to pay fines that may result from the bank's alleged links to drug cartels and terrorist groups. In the second quarter, the bank set aside an initial $700 million for the same purpose.

In July, a U.S. congressional committee issued a report detailing a lack of oversight at HSBC which resulted in thousands of suspicious transactions with clients of dubious repute.

Among other issues, the report noted that in 2007 and 2008, HSBC's Mexico unit shipped $7 billion in cash to the bank's U.S. affiliate, a volume of shipments that law enforcement officials said could reach that size "only if they included illegal drug proceeds."

HSBC Mexico had a number of high-profile clients linked to drug trafficking, the report said, as well as "a huge backlog of accounts marked for closure due to suspicious activity, but whose closures were delayed."

The report also found that HSBC worked extensively with Saudi Arabia's Al Rajhi Bank, some owners of which have been linked to terrorism financing, according to a CIA report quoted by the subcommittee. Some evidence suggests Al Rajhi's "key founder" was "an early financial benefactor of al Qaeda," the report said.

Even with $1.5 billion set aside to pay for its alleged indiscretions, more may be needed. In a statement released Monday, chief executive Stuart Gulliver said that U.S. authorities have "substantial discretion" on how to resolve the charges, and that no agreement has been reached.

"Indeed," Gulliver said, "the final amount of the financial penalties could be higher, possibly significantly higher, than the amount accrued." After the report's release, the bank issued a statement acknowledging it had "sometimes failed to meet the standards that regulators and customers expect."

HSBC also earmarked $353 million to compensate customers sold payment protection insurance, bringing the banks total hit for the quarter to $1.15 billion. The bank has been under fire for misleading clients regarding the purchase of certain kinds of insurance that prevented most policyholders from filing a claim.

In addition, the bank is being scrutinized for its alleged role in the Libor rate-rigging scandal. HSBC was subpoenaed in August by New York's attorney general.

Barclays, the first bank to settle with regulators, paid U.K. and U.S. regulators $453 million in penalties for rigging Libor. The bank's CEO resigned in the wake of that announcement.

  • Why bank stocks are immune to scandal

    Banks have had their share of bad publicity recently, but investors continue to give them the benefit of the doubt.

    Standard Chartered (SCBFF) is a prime example.

    The British bank's stock has recouped nearly all of the losses sustained earlier this month, when the bank was accused of laundering money for Iran.

    U.S.-listed shares plunged to a low of $18.65 on Aug. 7, one day after banking regulators in New York threatened to MORE

    - Aug 24, 2012 7:04 AM ET
  • Libor-scarred Barclays names new chairman

    Barclays, the bank most tarnished by the unfolding scandal over the manipulation of Libor rates, has wrapped up the first step in its quest to track down a new CEO.

    Barclays (BCS) named Sir David Walker, a financial and U.K. regulatory industry veteran, to succeed Martin Agius as the bank's chairman. Agius recently told investors that the bank would appoint a chairman before choosing a new CEO.

    Agius resigned, and then resumed MORE

    - Aug 9, 2012 2:54 PM ET
  • Barclays CEO job may be tough sell

    Bob Diamond's downfall was swift, but Barclays' board of directors will be forced to take its time choosing his replacement.

    The first problem, of course, is that of the missing chairman. Before the board of Barclays (BCS) can choose a new chief executive, the bank's interim chairman, Marcus Agius, said the first priority will be to find his replacement. Agius resigned his post just before CEO Diamond issued his resignation.  Following MORE

    - Aug 6, 2012 10:59 AM ET
  • Libor scandal: Where's the outrage?

    Libor. How many people gave it a passing thought before this scandal? In fact, I'm surprised that more people are still not giving it much thought.

    The scandal, after all, is another sign of banks doing what they want, making a lot of money and not really getting in all that much trouble (yet, anyway).

    To review: The London Interbank Offered Rate is the basis for many consumer loans and investments. It MORE

    - Jul 9, 2012 3:19 PM ET
  • 'For you ... anything.' Barclays Libor emails paint ugly picture

    Ever feel like the financial markets are simply a rigged game where the house (i.e. the world's largest banks) always win? Reading text messages and emails between traders at Barclays (BCS) about their often successful attempts to manipulate global benchmarks for interest rates will only reinforce that belief.

    These traders influenced the pricing of the London Interbank Offered Rate or Libor, a benchmark that dictates the pricing of up to $800 MORE

    - Jul 4, 2012 8:48 AM ET
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  • Barclays: Don't just blame us!

    Barclays (BCS) spent "nearly £100 million" ($157 million) and three years conducting an "exhaustive internal investigation" into its traders and executives' role in manipulating Libor, a key global benchmark interest rate, according to papers prepared by the bank ahead of Chief Executive Officer Bob Diamond's testimony before British lawmakers on Wednesday.

    Diamond, who resigned Tuesday, has apologized, and Barclays reiterated the bank's remorse in the document: "These events should never have MORE

    - Jul 3, 2012 1:04 PM ET
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