HONG KONG/LONDON HSBC revealed it faces another potentially damaging U.S. investigation, this time over hiring people linked to government officials in Asia, which combined with below-forecast earnings hit its shares on Monday.
Europe's biggest lender, which also said a U.S. monitor had concerns over the speed with which it was changing following money laundering lapses, confirmed it is among several financial firms being probed by the Securities and Exchange Commission (SEC) over Asian recruitment practices.
The SEC opened an investigation into JPMorgan in 2013 over the hiring of "princelings", the term used in Asia to refer to the children or younger relatives of China's political leaders or top executives at state-owned enterprises.
HSBC did not comment on the likely timing or impact of the probe into its own conduct, which combined with other regulatory revelations spooked some in the market given the billions it and other banks have had to pay to settle other U.S. cases.
The London-based bank disclosed that an independent monitor assigned under the terms of a 2012 deferred prosecution agreement (DPA) with U.S. regulators over money-laundering lapses had expressed 'significant concerns' over the pace of progress in improving internal controls.
The monitor reports annually on the bank's progress in improving its anti-money laundering and sanctions compliance as part of a five-year agreement HSBC signed following a fine of $1.9 billion over charges it had been used to launder cash.
Any decision as to whether the bank has breached the terms of the DPA rests with the U.S. Department of Justice.
If found to have breached the agreement, HSBC could face an extension of the monitoring period, or even criminal prosecution resulting in further financial penalties, the bank said in its annual report.
Meanwhile, the bank also said India's tax authority now believes it has evidence to prosecute HSBC for allegedly abetting tax evasion, in a case first disclosed a year ago.
HSBC posted profit before tax of $18.87 billion for 2015, little changed on 2014 but well below an average analysts' estimate of $21.8 billion, according to Thomson Reuters data, dragged down by a $858 million fourth quarter loss.
The regulatory moves and muted results meant HSBC was the biggest-declining stock in the blue-chip FTSE 100 index, falling as much as 4 percent at one point, although the shares regained some ground and closed down 0.9 percent.
HSBC said it would stick to delivering on a June strategic plan centred around expanding in China, in particular the densely-populated Pearl River Delta region, despite an economic slowdown there making the environment more challenging.
"China's slower economic growth will undoubtedly contribute to a bumpier financial environment, but it is still expected to be the largest contributor to global growth," Chairman Douglas Flint said.
HSBC, which just over a week ago decided not to move its headquarters to Hong Kong, said it would raise its total annual dividend to $0.51 per share from $0.50, a relief to investors who had worried the lender's more constrained capital position would cause it to abandon its goal of dividend growth.
The bank also warned that while it is keeping its headquarters in London, the possibility of Britain leaving the European Union could cause major disruptions to its business.
"A disorderly exit could force changes to HSBC's operating model, affect our ability to access the European Central Bank and high-value euro payments, and affect our transaction volumes due to possible disruption to global trade flows," it cautioned in its annual report.
So-called 'Brexit' would not trigger another HQ review, Gulliver said, but could lead to around 1,000 trading division jobs moving to continental Europe, likely Paris.
"The best possible outcome is for the UK to stay," Gulliver said on a media call following the results.
The bank said its poor fourth-quarter results reflected value adjustments on derivatives, legal costs and the disposal of its Brazilian business. It was also hit by restructuring costs the bank is undertaking to achieve cost savings of between $4.5 billion and $5 billion.
HSBC said it would retain and restructure Turkish operations that had been up for sale, after offers it received were deemed not to be in the best interest of shareholders.
"It remains a very good bank with a conservative risk appetite and will continue to outperform peers in a bear market, but as we've seen today, the earnings outlook for the bank remains muted," analysts at Bernstein Research wrote in a note.
Last year, Asia represented 83.5 percent of global pre-tax profit for HSBC, a larger portion than a year earlier and a sign the bank's growth is tied to the region's.
HSBC said in its annual report Chief Executive Stuart Gulliver's total pay had fallen to 7.34 million pounds ($10.33 million) from 7.62 million a year earlier.
($1 = 0.7107 pounds)
(Additional reporting by Denny Thomas in Hong Kong and Rachel Armstrong and Richa Naidu in London; Editing by David Holmes and Alexander Smith)
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Published Date: Feb 22, 2016 23:45 PM | Updated Date: Feb 22, 2016 23:45 PM