HSBC to freeze salaries, hiring in 2016 in battle to cut costs

 

Pay and hiring freeze possible at HSBC

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Why Refusing a Pay Cut May Get You Fire?

HSBC Holdings Plc will impose a global hiring and pay freeze as part of its drive to cut as much as $5 billion in costs by the end of 2017.

The measures, which affect the consumer and investment banking businesses, were outlined in a memorandum received by employees on Friday, Gillian James, a spokeswoman for the bank, said Sunday in an e-mailed statement. Europe’s largest bank, which will release full-year earnings on Feb. 22, is mulling whether to move its headquarters away from London, partly because of the tax burden and tougher regulatory scrutiny.

“This is in line with HSBC’s moves to lower operating costs,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “HSBC can’t escape from the global economic slowdown and worsening asset quality like other global banks.”

HSBC Chief Executive Officer Stuart Gulliver, 56, in June outlined a three-year plan to pare back a sprawling global network by shutting money-losing businesses and eliminate as many as 25,000 jobs as he seeks to boost profitability. Barclays Plc extended a freeze on hiring new staff indefinitely in December, while European lenders including Credit Suisse Group AG and Deutsche Bank AG are cutting thousands of jobs to shore up earnings.

The moves were reported earlier by Reuters.

The shares fell 1.6 percent to 484.25 pence at 10:10 a.m. in London, extending losses this year to about 9.6 percent. They dropped 12 percent in 2015.

Under its three-year plan, the London-based lender is seeking to reduce the number of full-time employees by between 22,000 and 25,000. In the U.K., the bank may eliminate as many as 8,000 jobs.

As part of its focus on more profitable markets, HSBC is reviewing its operations in Lebanon and may exit the Middle Eastern country, people with knowledge of the matter said earlier this month. The bank is closing its Indian private-banking business, people familiar with that move said in November.

HSBC is close to concluding an eight-month review into the best location for its headquarters, with Hong Kong seen as the leading candidate city. The lender is likely to stay based in London due to the vast logistics of relocating, Martin Gilbert, chief executive officer of Aberdeen Asset Management Plc, told Bloomberg Television in January. Aberdeen is one of the British bank’s biggest shareholders.- Bloomberg

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HSBC Bank to cut 50,000 jobs in major overhaul: slash investment bank and shrink risk!

http://bcove.me/a7i3qveb

HSBC Holdings PLC will eliminate as many as 50,000 jobs through 2017 by shrinking its global reach as Chief Executive Officer Stuart Gulliver seeks to cut annual costs by about $5-billion (U.S.) to restore profit growth.

Europe’s largest bank plans to reduce full-time employees by 22,000 to 25,000, or about 10 per cent, it said in a presentation to investors on its website on Tuesday. A further 25,000 positions will be cut through the sale of its Turkey and Brazil operations. The bank left its target for return on equity, a measure of profitability, at more than 10 per cent.

Gulliver, 56, is looking to restore investor confidence in a bank battered by a series of scandals and surging compliance costs. Since taking over in 2011, he’s announced more than 87,000 jobs cuts, exited about 78 businesses and reduced the number of countries the bank operates by 15 to 73.

“HSBC is a big bank to move and they’re definitely moving in the right direction,” said Chris White, who helps oversee about 3.9 billion pounds ($6-billion), including HSBC shares, at Premier Fund Managers Ltd. in Guildford, England. “A lot of it feels like it was broadly as expected.”

The shares were little changed at 619.6 pence at 9:30 a.m. in London. They are up about 1.9 per cent this year, trailing a 6.9 per cent gain at Standard Chartered PLC, the other U.K. bank generating most of its earnings in Asia.  

U.K. Cuts

Just months after taking over, Gulliver announced some 30,000 jobs cuts to trim costs by as much as $2.5-billion. In the latest round, as many as 21,000 of the cuts will be lost in a push for digital banking, automation and branch closures. In the U.K., up to 8,000 jobs will be cut, Gulliver said.

Under his plan, the CEO plans to cut risk-weighted assets by about $290-billion, including a reduction at the securities division to less than one-third of the group’s RWAs, and target a return on equity of more than 10 per cent by 2017. The bank cut its ROE target to 10 per cent in February from as much as 15 per cent. In 2014, it had an ROE of 7.3 per cent.

At the investment bank, HSBC plans to cut RWAs by a net $130-billion, or 31 per cent, while “keeping costs flat.” The global banking and markets division had a 6 per cent profit gain in the first quarter, as revenue from foreign-exchange rose.

Asia Focus

The savings program will cost $4-billion to $4.5-billion through 2017, according to the statement.

“We recognize that the world has changed and we need to change with it,” Gulliver said in the statement. “I’m confident that our actions will allow us to capture expected future growth opportunities and deliver further value to shareholders.”

HSBC, founded 150 years ago in Hong Kong, will also sell operations in Turkey and Brazil, while stepping up investment in Asia, expanding asset management and insurance and focusing on places including China’s Pearl River Delta and areas including the internationalization of the yuan.

Jonathan Tyce, a senior banks analyst at Bloomberg Intelligence, said that while it’s a “good cost number,” the short list of disposals “may have surprised a little.”

“Margins are higher” in Asia,” Tyce said in an interview on Bloomberg Television from London on Tuesday. “Everybody’s all over Asia. This is all about improving capital efficiency. You can completely understand the motivation.”

HSBC Fines

With his strategy update, Gulliver is seeking to convince investors that he’s the right man to lead HSBC. At Deutsche Bank AG, Germany’s largest lender, co-CEO Anshu Jain announced his resignation on Sunday, just two months after presenting a strategic update that investors considered too weak.

“Gulliver is not an idiot,” said Chris Wheeler, an analyst at Atlantic Equities in London. “This is quite the opposite to Deutsche Bank as there is tonnes of granularity of where the cost cutting will come, how they’re achieving it and why they’re getting out of countries.”

HSBC has come under pressure to reduce costs and reverse a decline in profit after a year that saw the bank being fined for manipulating currency markets and embroiled in a tax-avoidance scandal in Switzerland.

The bank last week agreed to pay 40 million Swiss francs ($43-million) to close an investigation by Geneva prosecutors into allegations of money laundering at its Swiss private bank.

‘Extreme Solutions’

In February, Gulliver pledged that underperforming units would face “extreme solutions” after full-year earnings fell 17 per cent and the lender scrapped four-year-old profitability targets, citing a tougher regulatory environment.

HSBC is among the hardest hit by regulator scrutiny, with the Bank of England forcing the largest lenders to separate their consumer from riskier investment banking activities by 2019. It’s also been hurt by an increasing bank levy, costing lenders about 5.3 billion pounds over the next five years.

The bank said earlier this year that it’s reviewing whether to re-domicile from London because of rising tax and regulatory costs. It will complete its headquarters review by the end of 2015, according to the statement.

“It would be a mistake that HSBC flees the country,” Bill Blain, a strategist at Mint Partners, said in an interview with Jonathan Ferro on Bloomberg Television on Tuesday. “This is actually a pretty good place for banks to be.”

Source: Blomberg News


HSBC to cut 50,000 jobs, slash investment bank and shrink risk by $290 billion

HONG KONG/LONDON: HSBC will shed almost 50,000 jobs and take an axe to its investment bank, cutting the assets of Europe's biggest lender by a quarter in a bid to simplify and improve its sluggish performance.

HSBC said it will shrink global banking and markets division to less than one third of HSBC's $2.6 tn balance sheet from its current level of 40%. 

The bank said on Tuesday about half the staff cuts will come from the sale of businesses in Brazil and Turkey. The other half will come from cutting about 10 per cent of the remaining 233,000 staff by consolidating IT and back office operations and closing branches. About 7,000-8,000 cuts are expected to be in Britain, or one in six UK staff.

The cuts will leave HSBC with about 208,000 full-time equivalent staff by 2017, down from 295,000 at the end of 2010 and 258,000 at the end of 2014, although the bank said it will be hiring in growth businesses and its compliance division.

The cuts are part of a second attempt by Chief Executive Stuart Gulliver to boost profits since he took the helm at the start of 2011. The previous effort was foiled by high compliance costs, fines, low interest rates and sluggish growth.

"Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex," said James Antos, analyst at Mizuho Securities Asia.

HSBC shares in London opened 0.9 per cent higher at 625 pence before slipping back to underperform both the FTSE 100 index and European banking stocks slightly.

HSBC said it will cut its assets on a risk adjusted basis (RWA) by $290 billion by 2017. That will include a reduction of a third, or $140 billion, in global banking and markets (GBM), its investment bank. That means GBM will account for less than a third of HSBC's balance sheet, down from 40 per cent now.

Investors had been calling for more radical cuts at the investment bank, which Gulliver ran for five years but where returns have suffered in tough market conditions.

"The cuts provide significant headroom for the group to fund asset growth in Asia and absorb RWA inflation, whilst protecting its ability to pay a progressive dividend," said Gurpreet Singh Sahi, analyst at Goldman Sachs.

COST SAVINGS

The bank lowered its target for return on equity to greater than 10 per cent by 2017, down from a previous target of 12-15 per cent by 2016. Gulliver said he will push through annual cost savings of up to $5 billion by 2017. It will cost up to $4.5 billion in the next three years to achieve the savings.

HSBC confirmed the planned sale of its businesses in Turkey and Brazil, adding it would keep a presence in the latter to serve corporate clients. It aims to overhaul underperforming businesses in Mexico and the United States to improve returns.

The bank said it was also targeting growth in Asia by expanding its insurance business and its presence in China's Pearl River Delta region.

Some analysts said the changes did not go as far as hoped, though others said the asset reduction plan was a substantial shift.

"The market is likely to respond positively on the move with investors having a much clearer idea of HSBC's direction going forward," said Steven Leung, a sales director at UOB Kay Hian in Hong Kong.

The bank also set out 11 criteria it will use to evaluate whether to move its headquarters from London to Asia, likely Hong Kong. They include factors such as economic growth, the tax system, government support for the growth of the banking system, long-term stability and an ability to attract good staff.

HSBC said it would complete the review of the possible move by the end of the year.

The bank also has to separate its British retail banking operation, which is to be based in Birmingham in central England. The "ring-fenced" bank will account for about two thirds of UK revenues, or $11 billion, and will have some 26,000 staff, or 57 per cent of the total in the United Kingdom.  - Reuters

Malaysian market to outperform

KUALA LUMPUR: The Malaysian equity market is expected to outperform the emerging Asian markets as price-to-book valuations are relatively low despite the sterling economic growth the country has seen last year, says an economist and investment strategist Herve Lievore (pic)

"We expect Malaysia to outperform other emerging Asian countries and that would probably take place in an environment where inflation could possibly accelerate given the fact that we have seen consumer price inflation extremely stable over the past four to five months," he told reporters at the HSBC 2013 Market Outlook briefing yesterday.

"We are expecting a moderate acceleration of inflation going forward but this is unlikely to derail the equity market," he added.

Lievore said it is also constructive on Malaysian equities due to massive undervaluation of the currency.

HSBC Global Asset Management (HK) Ltd senior economist and investment strategist  said emerging Asian markets excluding Singapore had grown by 20%-30% last year but the Malaysian equity market only grew by 10%.

“This is abnormal despite the fact the gross domestic product (GDP) growth in 2012 was strong but that should be temporary.

"The economic performance has been very good last year, we saw very positive developments especially on the structure of the economy," he said.

He said Malaysian equities are more attractive since prices have not risen that much last year when the economy actually performed very well.

Malaysian equities are undervalued given the prospect for earnings growth going forward. "What we have seen in 2012 is probably abnormal and temporary by nature," he said.

"The market has been obscured by uncertainties on when the general election will take place, but there is no reason why it underperforms that much."

HSBC favours cyclical sectors such as energy, basic materials, commodities, consumer discretionary and by extension, financials, which are dependent on the economic cycle.

Lievre also does not expect Bank Negara Malaysia to alter its key policy rates, which will remain at 3%.

Another factor for the central bank to maintain the Overnight Policy Rate is the expectation of ringgit appreciation going forward.

“In 2013, it is expected to perform better than other emerging Asian countries especially in the Asean region,” he told reporters at a media briefing.

He said increasing domestic demand would bode well for future growth.

He also said that the economic structure was strong but the equity market did not respond to that “evolution”.

“I would say that the market has probably been obscure on when the general election would take place but there is no reason why Malaysia underperformed that much.”

He was in favour of pure cyclical plays like commodities, utilities and financials and expected them to outperform defensive stocks.

He noted the timing for financial stocks to be different as banks responded to monetary cycle rather that economic cycle.

He was also positive about the number of companies listed on the local bourse.

“As the market becomes more liquid, it becomes more efficient and hence its attractiveness is increased,” he added.

Last year there were 17 new listings amounting to RM23bil on Bursa Malaysia.

He expected the inflation rate to be at a “benign” level although it might “accelerate moderately” as the consumer price index had stabilised in the past four to five months.

On the ringgit, he expected the currency to appreciate further as long as there was a trade surplus.

“Investors could take profit from stronger growth in the country and appreciation of currency, so, we are positive,” he said.

As for bonds, he expected growth to stabilise at the yield curve of slightly above 3%.

The only concern he had was the declining savings surplus if it were to fall below 8% of GDP.

On the global market, he expected growth to remain subdued with three key risks from the eurozone crisis, China's recovery and the “fiscal cliff” in the United States.

He said the Russian and China markets offered value for investors.

Sources:
NG BEI SHAN beishan@thestar.com.my and Eva Yeong sunbiz@thesundaily.com

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HSBC Bank fined $1.92 billion for money laundering

British banking giant HSBC agreed to pay a record $1.92 billion settlement Tuesday after a broad investigation by U.S. federal and state authorities found the bank violated federal laws by laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma

HSBC has agreed to pay $1.92 billion to settle a US money laundering probe. The British bank is alleged to have allowed clients with links to drug trafficking and terrorism to move money. 

The two sides reached a $1.92 billion (1.48 billion euros) settlement Tuesday, HSBC said.

"HSBC has reached an agreement with the United States authorities in relation to investigations regarding inadequate compliance with anti-money laundering and sanction laws," the bank said in a statement.

The settlement includes a five-year deferred prosecution agreement with the US Justice Department, which allows a subject under investigation to avoid prosecution if it meets conditions, such as paying fines.

Prosecutors had accused HSBC of allowing improper financial transfers from countries including Mexico, Iran and Saudi Arabia by clients linked to international crime, including drug trafficking and terrorism.

The bank apologized soon after, and acknowledged the firm lacked controls to prevent money laundering.

'Profoundly sorry'

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," said group chief executive Stuart Gulliver in a statement.

"We are committed to protecting the integrity of the global financial system. To this end we will continue to work closely with governments and regulators around the world," Gulliver said.

HSBC's announcement comes one day after another British bank, Standard Chartered, agreed to pay some $327 million (253 million euros) to settle charges it violated US sanctions by channelling money to clients in Iran and Sudan.

dr/msh (AFP, dpa, AP)

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HSBC’s US$2b cover Money is for cost of US probe and compensation

LONDON: HSBC's chief executive has apologised for shameful and embarrassing mistakes made on anti-money laundering controls as the bank set aside US$2bil to cover the cost of US investigations and compensate UK customers for misselling.

Europe's biggest bank reported a 3% dip in underlying profit and said it had made a provision of US$700mil to cover “certain law enforcement and regulatory matters” after a US Senate report this month criticised HSBC for letting clients shift funds from dangerous and secretive countries.

The report criticised a “pervasively polluted” culture at the bank and said that HSBC's Mexican operations had moved US$7bil into the bank's US operations between 2007 and 2008.

Gulliver: ‘What happened in Mexico and the United States is shameful, it’s embarrassing, it’s very painful for all of us in the firm.’
 

“What happened in Mexico and the United States is shameful, it's embarrassing, it's very painful for all of us in the firm,” chief executive Stuart Gulliver told reporters on a conference call yesterday, adding that the eventual costs could be “significantly higher”.

“We apologise for our past mistakes in relation to anti-money laundering controls, and it is a priority for senior management to build on steps already taken to manage risk and ensure compliance more effectively,” Gulliver said.

Analysts had said the US investigations could result in a fine of about US$1bil.

HSBC is also one of several banks being investigated in a global interest rate rigging scandal that has rocked the sector. Gulliver said it had submitted information to regulators but it was far too early to say what the outcome would be or to estimate the potential cost for the bank.

HSBC has set aside US$1.3bil to compensate UK customers for misselling loan insurance to individuals and interest rate hedging products to small businesses.

The bank reported a pre-tax profit of US$12.7bil for the six months to the end of June, up 11% on the year and above an average analyst forecast of US$12.5bil, according to a poll by the company.

But underlying profit, stripping out gains from US assets sales and losses on the value of its own debt, was down 3% on the year to US$10.6bil.

Shares in HSBC were up 0.7% to 534.6 pence, lagging a 1.8 % rise in Europe's bank index. Reuters  

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Anarchy in the financial markets!

 If regulators don't fix the lawlessness in international financial markets, future losses might us all in

THE lawlessness that pervades the international banking industry and especially the large Western banks must raise serious questions as to what perpetuates such barbarous behaviour among the custodians of people's money.

A big part of it is that the banking industry operates on greed rewarding its key employees via commissions for businesses brought in, deals made, and products sold even if they were dubious in the first place.

This encourages among the industry a bunch of highly dishonest salesman who shield themselves behind a veil of professionalism to dupe and seduce customers into believing their products are good and their processes are strong, secure and fair.

And they are aided by ineffectual regulators who parrot the trite phrase that free markets should not be overly regulated but turn a blind eye when the biggest financial institutions amass massive positions to fix markets and deceive customers, making a mockery of market freedom.

The Angel of Independence monument stands in front of HSBC’s headquarters in Mexico City. Europe’s biggest bank has been found laundering billion of dollars for drug cartels, terrorists and socalled pariah states, in a scandal which almost overshadows the Barclays’ one. — Reuters

The integrity of free markets was compromised because big players could affect the direction of markets, making the markets way less than perfect. Free markets basically became unfettered freedom to make money even at the expense of the market and the potential collapse of the world's financial system.

They did it yet again or to be more accurate they did it earlier but their misdeeds surfaced once more recently. UK's Barclay's bank made a US$453mil settlement with regulatory authorities in the United Kingdom and the United States for fixing the London interbank offered rate (Libor).

Now, it turns out that Barclay's may not be the only one. According to a Reuter's report, other major banks are likely to be involved and may try and go for a group settlement with regulators, the US' Commodities Futures Trading Commission and the UK's Financial Services Authority.

The banks being investigated include top names such as Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment to Reuters.

And one of these banks, Europe's biggest HSBC, has been found laundering billion of dollars for drug cartels, terrorists and so-called pariah states, in a scandal which almost overshadows the Barclays' one. That leads to the question of whether other banks were involved as well.

If they jointly fixed the Libor, the world's most used reference rate for borrowings and derivatives with an estimated US$550 trillion, yes trillion, of assets and derivatives tied to the rate, it will be a scandal of epic proportions and may result in settlements of an estimated US$20bil-US$40bil.

That settlement will only scratch the surface. Just 0.1% of US$550 trillion is US$550bil. That implies that if banks had been able to fraudulently fix Libor so that it was just 0.1 percentage points higher, customers throughout the world would have had to pay US$550bil more in interest charges in a year.

In March this year, five US banks, including Bank of America, Citigroup and JP Morgan Chase, made a landmark US$25bil settlement with the US government for foreclosure abuses.

Even so, only a small fraction of affected house buyers are expected to benefit from this. Many other banks, however, are relatively unaffected and have not been fully called to account for their role in the US subprime crisis, which could have caused a collapse of the world's financial system.

Banks which bundled together risky housing loans into credit derivative products and passed them off as those with higher credit rating than their individual ratings, aided by ratings agencies, got off scot free. No one was called to account.

That the financial system is still vulnerable and that all gaps have still not been closed is JP Morgan's recent loss of up to US$4bil from rogue trading by a London trader going by the name of The Whale.

There needs to be a new set of rules, regulations and behaviour one based on ethics, honesty, competency and checks and balances. Custodians of public money should be required to be above all else honest first and foremost.

They should be consummate professionals whose first duty should be to protect the deposits of customers and the bank's capital. They should not do anything which puts the bank at undue risk.

The insidious habit of rewarding those who bring in revenue with hefty commissions have to be stopped so that bankers do not take risks which put their banks at undue risk which will eventually require trillion of dollars in rescue from governments.

Regulators should again make clear demarcations between those financial institutions who are custodians of public money and those who are not and hold the former to much higher standards of accountability and integrity.

Shareholders of financial institutions who are custodians of public money should be led to expect a lower rate of return on their investments but they should also be led to expect a lower corresponding rate of risk befitting that of major institutions which are so vital for the proper functioning of the economy.

Enforcers should focus on bringing individuals responsible for these losses to book and throwing criminal charges at them which will put them behind bars for long periods of time, befitting their severity. Society at large tends to treat white-collar criminals with kid gloves.

When derivatives trading and deception brought major Wall Street firms such as Enron and WorldCom to their knees and eventual collapse in the early 2000s, enforcers brought to book key executives who are spending time behind bars.

But despite the near collapse of the world's financial system, despite fraudulent behaviour, despite misrepresentation and deception, despite selling structured products of dubious value and then promptly taking positions against them, despite fixing of reference interest rates, despite money laundering and despite many other crimes still to be unearthed, no one has been brought to account.

Fining institutions leaves those individuals responsible free. In fact, settlements made come with the agreement that there will be no prosecution of individual bank staff and gives major incentive for others to do the same.

They are safe in the belief that the institution will pay the price and they will go free in the event things turn wrong. Otherwise, they will end up millionaires and even billionaires. How convenient an arrangement!

There is anarchy in the financial markets and a state of lawlessness which encourages heists of unimaginable proportions without risk of punishment. If we don't watch it, the losses will do the world economy, and all of us, in.

A Question of Business
By P. GUNASEGARAM

> Independent consultant and writer P. Gunasegaram (t.p.guna@gmail.com) is amazed that people can get away with so much by just repeating two words: free markets.

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HSBC exposed: Drug money banking, terror dealings, money laundering!

Watch
HSBC hid '$16bn,' says a US senate
HSBC concealed more than $US16 billion in sensitive transactions to Iran, a US Senate panel says.
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The HSBC Private Bank in Geneva Source: AFP 

SHAMED HSBC Bank executives have admitted to allowing Iran, terrorists and drug dealers to launder billions of dollars.

With the international banking sector already under fire for manipulating interest rates and reckless trading, HSBC said more should have been done to prevent years of abuse amounting to tens of billions of dollars of illicit transactions.

US politicians grilled HSBC executives and US Treasury officials for failing to guard against money laundering they said benefited Mexican drug lords and terrorist networks, and for their bypassing of sanctions on Iran.

"It's pretty shocking stuff," subcommittee chairman Senator Carl Levin said.

Among the findings was the revelation that HSBC and its US affiliate concealed more than $15.67 billion in sensitive transactions to Iran, violating US transparency rules over a six-year period.

The chief compliance officer of HSBC says he is stepping down from that position after the investigation.

But David Bagley, the head of compliance for London-based HSBC Holdings, told a Senate investigations panel that he will remain at HSBC.

Bagley and other current and former executives of the bank apologised for lapses but said they weren't fully aware of illicit transactions flowing through the bank.

Senators expressed scepticism that they didn't know about problems that persisted for seven years.

"I recognise that there have been some significant areas of failure," David Bagley said at a hearing of the Senate Homeland Security Subcommittee on Investigations.

"HSBC has fallen short of our own expectations and the expectations of our regulators," he said.

While Bagley said the bank has "learned a number of valuable lessons" he acknowledged that this "clearly took far too long to resolve."

In its 330-page report, the Senate found the lender allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls.

Bagley has been the head of compliance since 2002, during the period in which the Senate investigation found that HSBC's lack of oversight allowed the bank to be used by drug traffickers and possible financiers of terrorist groups, and for other illicit purposes around the globe.

Bagley said he lacked full authority over the bank's far-flung affiliates, which each had their own compliance officer.

HSBC executives were aware of the "concealed Iranian transactions" - which stripped all identifying Iranian information from documentation - as early as 2001 but allowed thousands of transactions to continue until 2007.

A review of HSBC's use of so-called U-turn transactions, in which funds are sent into and then out of the United States through non-Iranian foreign banks, showed the bank conducted almost $US25,000 transactions with Iran.

"The vast majority of the Iranian transactions, ranging from 75 to 90 per cent over the years, were sent through HBUS and other US dollar accounts without disclosing any connection to Iran," according to the report.

The US prohibits doing business with nations it regards as enemies such as Iran and North Korea, and its Office of Foreign Assets Control (OPAC) imposes tight filters to halt potentially prohibited transactions.

Levin said the bank willfully circumvented the OFAC filters.

The senator said senior HSBC officials in London "knew what was going on, but allowed the deceptive conduct to continue."

Under the slogan The World's Local Bank, the network that began life as the Hong Kong and Shanghai Banking Corporation provides US dollars to HSBC banks in many countries under a procedure known as "correspondent banking."

But its compliance failures clearly spun out of control.

The report said HSBC's Mexican affiliate "transported $7 billion in physical US dollars to HBUS from 2007 to 2008 ... raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States."

And it said HBUS "provided US dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing."

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Four British banks to pay for scandal!

LONDON: Britain's four biggest banks have agreed to pay compensation to customers they misled about interest rate hedging products, following an investigation by Britain's financial regulator.

The Financial Services Authority (FSA) said yesterday it had reached an agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate compensation following an investigation into the misselling of the products.

The FSA said it found evidence of “serious failings” by the banks and added: “We believe that this has resulted in a severe impact on a large number of these businesses.”

The finding by the FSA of misselling could lead to compensation claims ranging from many millions to several billion pounds from small companies which bought them.

It is the latest in a string of misselling cases that have plagued the financial services industry for over two decades. Banks are already set to pay upwards of £9bil (US$13.96bil) in compensation to customers for misselling loan insurance.

The news will compound problems for a sector that was hit hard on Thursday by news of a record US$450mil fine levied on Barclays for rigging interest rates.

The FSA said the banks had agreed to compensate directly those customers that brought the most complex products.

The products range in complexity from caps that fix an upper limit to the interest rate on a loan, through to complex derivatives known as “structured collars” which fixed interest rates with a bank but introduced a degree of interest rate speculation.

The banks have agreed to stop marketing “structured collars” to retail customers.

The size of the likely compensation was not disclosed but Lloyds issued a separate statement saying it did not expect the financial impact from the settlement to be material. - Reuters

Moody's downgrades 15 major banks: Citigroup, HSBC ...

Citigroup and HSBC were among the banks downgraded

The credit ratings agency Moody's has downgraded 15 banks and financial institutions.

UK banks downgraded include Royal Bank of Scotland, Barclays and HSBC.

In the US, Bank of America, Citigroup, Goldman Sachs and JP Morgan are among those marked down.

BBC business editor Robert Peston reported on Tuesday that the downgrades were coming and said that banks were concerned as it may make it harder for them to borrow money commercially.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," Moody's global banking managing director Greg Bauer said in the agency's statement.

The other institutions that have been downgraded are Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank, Royal Bank of Canada and Morgan Stanley.

Moody's said it recognised, "the clear intent of governments around the world to reduce support for creditors", but added that they had not yet put the frameworks in place that would allow them to let banks fail.

Some of the banks were put on negative outlook, which is a warning that they could be downgraded again later, on the basis that governments may eventually manage to withdraw their support.

“Start Quote

The most interesting thing about the Moody's analysis is that it, in effect, creates three new categories of global banks, the banking equivalent of the Premier League, the Championship and League One”

Robert Peston Business editor

• Read more from Robert

In a statement, RBS responded to its downgrade saying: "The group disagrees with Moody's ratings change which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile."

The BBC's Scotland business editor Douglas Fraser tweeted: "Cost of RBS downgrade by Moody's: having to post an estimated extra £9bn in collateral for its debts."

Of the banks downgraded, four were cut by one notch on Moody's ranking scale, 10 by two notches and one, Credit Suisse, by three notches.

"The biggest surprise is the three-notch downgrade of Credit Suisse, which no one was looking for," said Mark Grant, managing director of Southwest Securities.

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Demise of US dollar as world currency

Experts see demise of dollar as world currency

 By DORIS C DUMLAO and MICHELLE V. REMO

IT may only be a matter of time before the US dollar gets replaced as the main currency in international trade, according to economists attending the meeting of the board of governors of the Asian Development Bank (ADB) in Manila.

Asian Development Bank, ADB

For many years, the dollar “has been almost the sole ‘reserve’ currency,” banked on by the world economy, American economist Jeffrey Sachs said on Thursday in one of the forums held during the ADB annual event. “Going forward, (the dollar) can’t play that role anymore.”

Sachs added that he could not see how the US dollar could remain as the world’s reserve currency when “the role of the United States in the global economy is diminishing.”

Several finance experts echoed Sachs’ sentiment, explaining that, with the greenback expected to weaken further, the world should turn to another currency to facilitate international trade and other commercial transactions.

“Having another reserve currency other than the US dollar is only a matter of time. We don’t know exactly when it will happen, but it will,” Neeraj Swaroop of Standard Chartered Bank said in an interview at the sidelines of the ADB meeting.

In the area of merchandise trading, Swaroop said, countries have actually started to use currencies other than the US dollar.

Sachs also said that some countries could turn to more than one currency in maintaining their foreign exchange reserves.

One currency being considered is the Chinese renminbi (RMB) which, according to HSBC, will inevitably become an international reserve currency.

The renminbi, or yuan, has the potential to become an international reserve currency because China is continuing to post strong growth, becoming an important player in the global economy, Iwan Azis, ADB head for regional integration, said in the same forum.

Also, China is pushing to make the yuan the world’s reserve currency – a move that is seen to hasten the replacement of the US dollar, Azis added.

Already, British banking giant HSBC has mapped out a strategy to be a leading global player in the “renminbi banking” space.

This global strategy has filtered into the Philippine market with the bank’s introduction of RMB-denominated deposit and trade financing facilities, top HSBC officials said in a press briefing on Thursday.

Spencer Lake of HSBC said the renminbi was increasingly becoming an important currency from a trade perspective.

Lake was in Manila as head of the HSBC delegation to the ADB event.

“If it were freely convertible today, it will be the second-largest currency in the world,” Lake said, noting that China has started to liberalise currency systems.

“It’s part of our core strategy to adopt and put in place all of the infrastructure and products to embrace (the renminbi) as a future reserve currency,” Lake said.

Lake said the bank’s strategy appeared to be gaining ground as indicated by a “significant” buildup of the RMB business in Hong Kong, Singapore and other South-East Asian countries.

“The world is getting ready to adopt it as a world currency,” he said. “You’ll see it as a more common language.”

“Reserve” currency, which is currently used to describe the US dollar, is the denomination that accounts for bulk of the foreign exchange reserves of most countries.

A country taps its foreign exchange reserves whenever it needs to pay off the costs of imported products and debts to foreign creditors.

After the United States fell into a recession in 2009, the US dollar began to weaken against emerging market currencies.

The trouble with hanging on to the dollar as the main reserve currency is that it is prone to depreciation given the prevailing economic troubles of the United States.

Depreciation of the US dollar, in turn, may lead to a reduction in the value of a country’s foreign reserves, experts said.

Apart from the yuan, Sachs said other viable currencies that could replace the US dollar were the euro and the Japanese yen. — Philippine Daily Inquirer / Asia News Network   

HSBC makes £13.8bn profits

 HSBC's annual profits rose 15% to £13.8bn ($21.9bn) in what it called a year of "major progress".

The bank said that 2011 was a year of major progress for HSBC

The bank is the biggest in Europe and makes about 90% of its profits outside the UK.

HSBC's UK profits were 17.2% higher than last year at £1.5bn.

The bank singled out its "strong performance" in faster-growing markets, with revenue up 12% in Asia and Latin America, as well as in the Middle East and North Africa.

It said these regions now accounted for 49% of group revenue. It also said 2011 was a record for commercial banking.

Profit before tax in that division was up 31% at almost £5bn.

Also helping the headline profit figure was a rise of £2.5bn in the value of its debt.



The investment banking division fared less well. Profits there fell 24% to £15bn as a result of the eurozone crisis.

UK banking
 
The UK division met its Project Merlin lending targets, set by the government.

It lent £49.4bn to businesses, well above its target of £38.8bn, with £11.9bn going to small and medium-sized enterprises (SMEs).

HSBC also increased mortgage lending by 12% to £13.2bn and expects to increase that to £15bn this year, with £3bn earmarked for first-time buyers.

Like other UK banks, HSBC has faced claims over mis-sold payment protection insurance - policies which were sold to maintain loan repayments in the event of illness or redundancy.

But in many cases, the insurance was sold to those who were not appropriate customers for the product.
The bank said it was "truly sorry" to those adversely affected by "our failings".

Lloyds Bank last week took back £2m in bonuses from senior executives, and HSBC said it, too, had exercised "clawback".

HSBC's total bonus pool for the year to 31 December was £2.64bn.

Top earners
 
The group chief executive, Stuart Gulliver, received a total pay award of £7.2m, made up of a £1.2m salary, a £2.2m bonus and long-term incentives of £3.75m, which is in shares and cannot be sold until he retires or leaves the bank.

Mr Gulliver was not the top earner this year, however. Another senior bank employee, who has not been named, will receive £8m in total.

More than 200 key employees in the UK earned a total of £53m.

The size of the remuneration was seen as inappropriate by some, partly because the bank is currently in the process of cutting 30,000 jobs worldwide as part of wide-ranging cost-cutting measures designed to save up to £2.2bn by 2013.

David Fleming, national officer at the union Unite, said: "How can Stuart Gulliver have a clear conscience over his reward package of £7.2m while thousands of staff face uncertainty about their jobs?"

The bank's chairman, Douglas Flint, who will receive £3.4m for 2011, said he accepted that "a few people" were paid "extraordinarily well" but insisted the bank needed to attract and retain the best staff.

'Traction'
 
HSBC is the currently the most profitable Western bank, with its nearest rival, JP Morgan, reporting a profit of £12bn.

It operates in 80 countries and employs 288,000 people, 50,000 in the UK.

Mr Gulliver said: "2011 was a year of major progress for HSBC. We gained traction in our strategy designed to simplify the structure and improve the management and control of the group.

"I am pleased with our progress, but there is a lot more to do and we remain focused on delivering our targets."

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