The banking group announced 2015 results for its private bank and other segments today.

(Updated with additional material on litigation issues, Asia-related hiring practices probe by US authorities, share price reaction.)

HSBC's private banking arm today logged net operating income of $2.172 billion for last year, against $2.377 billion a year earlier.

The Hong Kong/London-listed banking group, which recently decided not to move its corporate headquarters from London to Asia and overturned a pay freeze proposal, reported pre-tax profit for the year ending 31 December 2015 of $344 million. This was sharply down from the $626 million logged a year earlier.

Over the past 12 months, HSBC has been through heavy changes across its business, with a shift in emphasis in private banking towards higher-growth regions such as Asia. Last year, HSBC’s private banking operations, through the bank's Swiss business, were hit by claims that it had held secret accounts. These stemmed from the theft of data by a former employee (Herve Falciani, who was subsequently sentenced to a jail term). The bank said the accounts affected included those shut as far back as the 1990s and that it has significantly de-risked its Swiss private banking operations.

“Global private banking grew in Asia, but was down overall due to the impact of the continued repositioning of the business,” Stuart Gulliver, group chief executive, said in his presentation of results.

Total client assets are $365 billion; the private bank had inflows of $14 billion in the business it is targeting for growth, a spokesperson told this publication when asked about some specific data.

Across the whole group, reported profit before tax rose 1 per year year-on-year at $18.867 billion, mainly caused by a “favourable movement in significant items”. On an adjusted basis, pre-tax profit fell 7 per cent year-on-year to $20.418 billion.

Shares fell in HSBC; around 08:30 GMT in London, prices were down 5.1 per cent amid disappointment, reports said, about the main profit figure for 2015.

HSBC has sold operations in Brazil and is restructuring its business in Turkey.

Gulliver said in his comment on changes that reducing HSBC’s risk-weighted assets remained “vital to achieving a better return for shareholders”.

Last year, the bank cut RWAs by $124 billion, taking the bank nearly half-way towards its target to be achieved by the end of 2017. “We expect to deliver further RWA reductions in 2016, in addition to a decrease of around $33 billion from the sale of our business in Brazil,” Gulliver said.

“We have received a number of offers for our business in Turkey since June, none of which were deemed to be in the best interests of shareholders. We have therefore decided to retain and restructure our Turkish operations, maintaining our wholesale banking business and refocusing our retail banking network. This will provide better value for shareholders and continue to allow our clients to capitalise on HSBC’s international footprint,” he said.

“Our cost-reduction measures are already having an impact on our cost base and HSBC is now a leaner business than at the half-year. All of our initiatives to reduce costs are under way and we expect further progress in 2016.  We continued to redevelop our businesses in the US and Mexico over the course of 2015. These are important businesses in the context of the wider group and we are committed to turning them around. An increase in cross-border business across the NAFTA area and improved collaboration between global businesses helped to generate increased revenue,” he said.

Probes and lawyers
HSBC is among a number of financial organisations being probed by the US Securities and Exchange Commission in relation to alleged hiring practices in the Asia-Pacific region.
The investigation is connnected to hiring of candidates referred by, or related to, government officials or employees of state-owned companies in the region, the bank said in its 2015 results statement.

"The US Securities and Exchange Commission is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in AsiaPacific.  HSBC has received various requests for information and is cooperating with the SEC’s investigation. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant," it said.

At issue is whether any firm hired relatives of influential Chinese officials to help obtain business or even as a reward, and whether that ran afoul of the Foreign Corrupt Practices Act of 1977, which makes it illegal to provide pay or benefits to a foreign official. The law also specifies what records must be kept to ensure compliance (source: Bloomberg, other media).

Separately, HSBC also updated markets on other regulatory/litigation issues, such as anti-money laundering and tax compliance.

"HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Private Bank (Suisse) and an HSBC company in India, acted appropriately in relation to certain customers who had US tax reporting obligations," it said.

"In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ," it said.

In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had previously been authorised.  In addition, various tax administration, regulatory and law enforcement authorities around the world, including in Belgium, France, Argentina and India, are conducting investigations and reviews of HSBC Swiss Private Bank and other HSBC entities in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.
HSBC Swiss Private Bank has been placed under formal criminal examination by magistrates in both Belgium and France, the statement continued.

In February 2015, HSBC was informed that the French magistrates are of the view that they have completed their investigation with respect to HSBC Swiss Private Bank and have referred the matter to the public prosecutor for a recommendation on any potential charges to be brought, whilst reserving the right to continue investigating other conduct at HSBC. In April 2015, HSBC Holdings was informed that it has been placed under formal criminal investigation by the French magistrates in connection with the conduct of HSBC Swiss Private Bank in 2006 and 2007 for alleged tax offences, and a €1bn bail was imposed. HSBC Holdings appealed the magistrates’ decision and, in June 2015, bail was reduced to €100 million. The ultimate financial impact of this matter could differ significantly, however, from the bail amount of €100 million, it said.