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HSBC profit hit by multiple misconduct provisions

A shining light, but no example.Photograph by Pawel Libera — Getty Images

HSBC Holdings Plc (HBC) became the latest of the world’s top banks to book a hefty charge against earnings as it prepares to settle with regulators over allegations of manipulating the foreign exchange market.

HSBC’s announcement follows similar ones from Lloyds Banking Group Plc (LYG), Royal Bank of Scotland Plc (RBS), Deutsche Bank AG (DB) and UBS AG (UBS) in the last week, underlining the breadth and scale of the scandal.

Regulators suspect the banks of colluding with each other ahead of the daily “fixings” of certain foreign exchange prices. In addition to the regulatory fines expected, some are also facing civil suits from customers in the U.S.. Reuters reported last month that the bank had already fired two senior traders in connection with the probe.

But the earnings report showed misconduct running like a Leitmotif through the bank in recent years. HSBC set aside a total of $1.6 billion in various provisions against past issues. Of the total provision, $378 million related “to the estimated liability in connection with the ongoing foreign exchange investigation” by the U.K.’s Financial Conduct Authority.

The FX charge comes on top of a $550 million one taken in September to settle with the Federal Housing Finance Agency over mis-selling mortgage debt before the financial crisis, and another $701 million for mis-selling product (mainly payment protection insurance) to U.K. customers.

In addition, it said it might also be facing fines for helping private bank customers in France to evade taxes. Similar action by the French authorities against UBS cost it €1.1 billion.

“Although the outcome of the hearing, and any such investigation, is at this time uncertain, as matters progress it is possible that any fines, penalties or other terms imposed could be significant,” the bank said.

After stripping out a bewildering array of one-off items, the bank said underlying revenue in the third quarter was $15.8 billion, up 5% from a year earlier, while pretax profit fell 12% to $4.41 billion.