London headquartered but Asian focused HSBC has seen a 62 percent drop in its annual pretax profits falling short of analysts expectations. It has also made serious provisions for numerous regulatory issues.
The bank's poor results were driven by lower revenues including from its wealth management business units, and by a significant write down of its private banking operations.
Despite this Stuart Gulliver, Group Chief Executive, said «2016 was a good year in which we delivered a solid performance from all our global businesses.»
Private Banking Write-Off
HSBC's reported profit before tax reflected a number of large significant items, including a write-off of all the remaining goodwill in Global Private Banking in Europe, an accounting loss on the sale of its Brazil business, and investments aimed at cost-saving.
The bank said it considered it appropriate to write off the remaining goodwill in the European private banking business. The goodwill related principally to the original purchase of Safra Republic Holdings in 1999.
HSBC bought its European private-bank businesses in 1999, paying $9.85 billion to acquire Edmond J. Safra’s Republic New York Corp. and Safra Republic Holdings SA.
Swiss Leaks
The Geneva unit, according to a «Bloomberg» report, was at the centre of the so-called Swiss Leaks scandal in 2015, which showed the bank’s Swiss unit sheltered the cash of tax dodgers, drug cartels and arms dealers. HSBC has said it’s since overhauled compliance and risk controls.
The bank says its restructuring of Global Private Banking is now largely complete, and although Global Private Banking is now much smaller than it was three years ago, it is deliberately positioned for sustainable growth with a focus on serving the personal wealth management needs of the leadership and owners of the Group’s corporate clients.
Ongoing Legal And Regulatory Issues
The London based bank also lists a substantial number of ongoing regulatory and tax-related investigations around the world including in the U.S., France, Belgium, Argentina and India, which are conducting investigations and reviews of HSBC Private Bank (Suisse) (HSBC Swiss Private Bank) and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.
HSBC is also cooperating in ongoing investigations by the U.S. Department of Justice and the U.S. Internal Revenue Service.
As if that was not enough the bank has also received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co., which the bank says could be significant.
