LONDON – A U.S. fine for anti-money laundering rule breaches could cost HSBC significantly more than $1.5 billion and is likely to lead to criminal charges, Europe's biggest bank said on Monday.
HSBC said the U.S. investigation had caused "considerable reputational damage" and had forced it to set aside a further $800 million to cover a potential fine to cover breaches in anti-money laundering controls in Mexico, adding to $700 million put aside in July.
"It could be significantly higher," Chief Executive Stuart Gulliver told reporters on a conference call, saying the latest provision was based on discussions with the various U.S. authorities involved in the probe.
The timing of any settlement is in the hands of regulators.
"The resolution of at least some of these matters is likely to involve the filing of corporate criminal as well as civil charges and the imposition of significant fines, penalties and/or monetary forfeitures," the bank said in its results.
A U.S. Senate report in July said HSBC had let clients shift potentially illicit funds from countries such as Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.
"The report undoubtedly caused considerable reputational damage to HSBC. The extent to which that has resulted in loss of business is hard to measure, but it has undoubtedly damaged our brand," Gulliver said.
He said a number of staff had left the firm as a result of the investigation and a number had had pay clawed back.
The issue marks another blow for the reputation of British banks, after rival Barclays was fined $450 million in June for rigging Libor interest rates and the industry has had to set aside more than 10 billion pounds to compensate UK customers for mis-selling insurance products.
HSBC Chairman Douglas Flint will appear before UK lawmakers investigating culture and standards later on Monday. He appears alongside new Barclays CEO Antony Jenkins and Santander UK boss Ana Botin at 1600 GMT.
HSBC reported an underlying profit - after stripping out the impact of disposals and changes in the value of its own debt - in the July-September quarter of $5.0 billion, up from a revised $2.2 billion a year earlier.
Underlying operating expenses rose by 16 percent during the quarter compared with the year before, HSBC said.
It said it is paying $200 million to $300 million more each year to meet tougher regulation and improve its U.S. compliance measures, adding to pressure on Gulliver to deliver on a promise to cut costs to below 52 percent of revenues.
The firm's underlying cost/income ratio came in at 63.7 percent in the third quarter. Gulliver admitted getting to his 48-52 percent target was "proving challenging", but said he remained committed to delivering it by the end of 2013.
HSBC took another $353 million charge for mis-selling in Britain, mainly for payment protection insurance.
Shares in HSBC were down 2.2 percent by 1012 GMT. (Additional reporting by Sarah White; Editing by Dan Lalor and Philippa Fletcher)