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HSBC chairman warns against banking reforms HSBC chairman warns against banking reforms
(about 4 hours later)
The chairman of HSBC has warned that the fear of hefty fines was forcing banks to become risk averse amid unprecedented regulatory reforms following the financial crisis. The chairman of HSBC warned yesterday that fear of hefty fines was forcing banks to become risk averse as they grapple with unprecedented regulatory reforms in the wake of the financial crisis.
As Britain's biggest bank revealed it was putting aside $367m (£218m) to cover compensation for mistakes concerning loan statements to its UK customers, Douglas Flint said there was an "observable and growing danger of disproportionate risk aversion". As Britain's biggest bank revealed it was putting aside $367m (£218m) to cover compensation for mistakes in loan statements to UK customers, Douglas Flint said there was an "observable and growing danger of disproportionate risk aversion".
He made his remarks as the bank, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to $12.3bn on a year ago and published warnings about the litigation and regulatory fines it could face on an array of matters ranging from the collapse of the Madoff empire to the fixing of prices in currencies and gold and silver. He warned of "growing fatigue" in some of the bank's operations, where staff were having to work at weekends to implement systems changes. One concern was that "there are only 52 weekends in a year".
Flint outlined a list of regulatory changes that the bank was facing, including the implementation of a ringfence between its retail and "casino" investment arms – demanded by UK regulators from 2019 – at the same time as a competition review into current accounts and small business customers. He would not comment on the letter he has written to the chancellor George Osborne calling for a delay to the 2019 deadline for ringfencing, which the bank said involves "substantial" costs amounting to hundreds of millions of pounds a year. He made his remarks as the bank, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to $12.3bn and published 10 pages of warnings about the litigation and regulatory fines it could face on an array of matters ranging from the collapse of the Madoff empire to the fixing of prices in currencies and gold and silver. Some of these fines could be "significant", the bank added.
"I do not think we have ever had to ask so much of so many," said Flint of the bank, which employs 256,000 people around the world. "We face growing fatigue within critical functions as well as increased market competition for trained staff from other financial institutions facing similar resource challenges. This is adding to cost pressures both from increased salaries as market rates increase, and from investment in training and systems support to improve productivity. Flint outlined a list of regulatory changes that the bank was facing, including implementing a ringfence between its retail banking and "casino" investment arms – demanded by UK regulators from 2019. He would not comment on the letter he has written to the chancellor, George Osborne, calling for a delay to the 2019 deadline, which the bank said involves costs amounting to hundreds of millions of pounds a year.
"The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented." "I do not think we have ever had to ask so much of so many," said Flint. "The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented."
Flint added that staff were having to work weekends to make changes to its systems. "One of the most obvious statements … [about fatigue] is that there are only 52 weekends in a year." The bank employs 256,000 people around the world, down from the 300,000 employed three years ago when Stuart Gulliver, - whose motto is "courageous integrity " - took over as chief executive.
The bank was fined £1.2bn by the US authorities in 2012 for breaching US sanctions and allowing Mexican drug lords to launder money through the financial system. Last week it faced criticism for closing the accounts of three Muslim organisations, including the Finsbury Park mosque, which in the late 1990s and early 2000s became synonymous with the radical cleric Abu Hamza. Two years ago the bank was fined £1.2bn by the US for breaching US sanctions and allowing Mexican drug lords to launder money through the financial system, making it subject to tougher scrutiny from US authorities. Last week it faced criticism for closing the accounts of three Muslim organisations, including the Finsbury Park mosque in north London, and it has previously closed accounts for diplomatic staff.
"Greater focus on conduct and financial crime risks at all levels of the firm globally is clearly the right response to past shortcomings. There is, however, an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals, facing uncertainty as to what may be criticised with hindsight and perceiving a zero-tolerance of error, seek to protect themselves and the firm from future censure," Flint said. Flint said the increased focus on conduct and financial crisis was the right response to problems in the past. "There is, however, an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals, facing uncertainty as to what may be criticised with hindsight and perceiving a zero-tolerance of error, seek to protect themselves and the firm from future censure."
He called for clarity from public policy and watchdogs over their expectations about behaviour and the rules, which for instance are leading staff to only sell the simplest products to consumers. He called for clarity from watchdogs over their expectations. "Unwarranted risk aversion threatens to restrict access to the formal financial system to many who could benefit from it... and risks unwinding parts of the ecosystem of networks and relationships that support global trade and investment," he said.
"Unwarranted risk aversion threatens to restrict access to the formal financial system to many who could benefit from it and risks unwinding parts of the ecosystem of networks and relationships that support global trade and investment," he said. The bank took a $194m hit to cover compensation for customers miss-sold payment protection insurance, the industry's biggest scandal with costs topping £24bn. It also listed the $119m costs incurred from an investigation into potential tax avoidance by US clients. The new $367m charge for failing to comply with the Consumer Credit Act makes HSBC the latest bank to fall foul of this regulation following a warning from the Office of Fair Trading last year about incorrect documents sent to customers who, in HSBC's case, were not told annually that they could make partial repayments of loans.
Lower UK customer redress programme charges of $234m compared with $412m in the first half of 2013 but $194m of this related to a fresh charge to compensate customers missold payment protection insurance. The industry's bill for paying compensation to customers sold this insurance alongside loans now tops £24bn - the biggest misselling scandal in UK history. Andrew Tyrie, the Conservative chair of the Treasury select committee, who chaired the parliamentary commission on banking standards that called for the "electrification" of the ringfence, to break banks up if they failed to comply with the rules, said: "We must ensure the momentum behind the crucial reforms both on ringfencing and on electrification is not lost. They are in any case half a decade away from completion.
The new $367m charge for failing to comply with the Consumer Credit Act makes HSBC the latest bank to fall foul of its regulation. Barclays, for instance, has warned it could face costs of £100m to repay interest to consumers whose statements did not comply with the act, while Northern Rock has paid out £270m. In November 2013, the Office of Fair Trading wrote to 50 banks and building societies about incorrect documents sent to customers who, in HSBC's case, were not told annually that they could make partial repayments of loans. "It is equally important that in implementing them the regulators exercise judgment to minimise the regulatory burden. In the end everyone loses from excessive regulation."
As is usual, the bank held its dividend flat, but because it is set in dollars, which have fallen against the pound, Justin Cooper of Capita Asset Services said: "UK investors will see their cheque shrink by around 8% when it lands on the doormat in October." The shares rose 1% to 635p.
Gulliver said UK interest rates could start to rise from their historic lows in the fourth quarter of this year, which would help bolster profits.
"Overall, one gets the sense that HSBC is busy tightening the ship – getting costs screwed down, refining their customer propositions, and making sure that their various regulators are happy – so that they are best-positioned for the global recovery," said Sandy Chen, analyst at Cenkos.