HSBC’s
Swiss private banking division is under investigation by law enforcement in
Switzerland and France over suspected money laundering activities, the British
banking giant disclosed Wednesday alongside its quarterly earnings that fell
short of analyst expectations.
HSBC Swiss Unit Faces
Money Laundering Probe by Two Countries
The probe
centers on what HSBC describes as “two historical banking
relationships” that caught the attention of authorities. While the bank
said the investigations remain in early stages, it cautioned that any eventual
penalties or sanctions could pack a serious financial punch.
HSBC didn’t
sugarcoat the potential consequences. The bank told investors it’s “not
practicable” to predict how this will play out, but warned the impact
“could be significant.” That kind of language typically signals
lawyers are preparing for substantial costs down the road.
Q2 Results Miss as Buyback
Softens Blow
The money
laundering disclosure came as HSBC delivered mixed second-quarter results that
fell short of analyst expectations. Europe’s largest bank reported profit
before tax of $6.3 billion for the three months ending June, down 29% from the
same period last year and missing the consensus estimate of $6.99 billion.
Revenue
also disappointed, coming in at $16.5 billion against expectations of $16.67
billion. The shortfall stemmed partly from impairment charges related to a
Chinese bank and lost income from businesses the lender sold off in the first
half of 2024.
To cushion
the disappointment, HSBC announced a $3 billion share buyback program, though
it wasn’t enough to prevent Hong Kong-listed shares from sliding 3.82% at the
close. Operating expenses jumped 10% year-over-year, driven by restructuring
costs and increased technology investments.
CEO Georges
Elhedery acknowledged the challenging environment, pointing to “structural
challenges” facing the global economy. He specifically called out
broad-based tariffs and fiscal vulnerabilities as sources of uncertainty that
are complicating inflation and interest rate outlooks.
“Even
before tariffs take effect, trade disruptions are reshaping the economic
landscape,” Elhedery said. The bank warned that while direct tariff
impacts on revenue should be modest, broader macroeconomic deterioration could
push its return on tangible equity below its mid-teens target range.
Regulatory Heat Already
Building
This isn’t
HSBC’s first rodeo with Swiss money laundering concerns. Last year,
Switzerland’s financial watchdog FINMA delivered a stinging rebuke of the
bank’s compliance practices.
The
regulator found HSBC’s private bank had botched basic due diligence on
high-risk accounts belonging to politically exposed persons – essentially
politicians, government officials, and their associates who pose higher
corruption risks. The violations involved more than $300 million in
transactions spanning 2002 to 2015.
FINMA
didn’t pull punches in its assessment. The regulator said HSBC “failed to
carry out an adequate check of either the origins, purpose or background of the
assets involved” and couldn’t properly document transactions to prove they
were legitimate.
The Swiss
penalty came with strings attached. HSBC had to conduct a comprehensive review
of its anti-money laundering systems and freeze new business with politically
exposed clients until the cleanup was complete.
Related: HSBC Australia Faces ASIC Lawsuit over Alleged $23 Million Scam Losses
Broader Industry Scrutiny
HSBC’s
troubles reflect a wider crackdown on financial crime compliance across the
banking sector. UK regulators alone have imposed over £250 million in
anti-money laundering fines since early 2024, with compliance experts expecting
the penalty parade to continue.
Recent
research suggests the problems run deep. A survey of UK bank compliance
officers found that 82% admit they don’t always properly verify new individual
customers, while only 6% run daily checks on existing clients.
The
investigation puts fresh pressure on HSBC as it tries to rebuild its reputation
following years of regulatory troubles. The bank has faced repeated sanctions
and fines across multiple jurisdictions for compliance failures, making this
latest probe particularly unwelcome news for management and shareholders.
This article was written by Damian Chmiel at www.financemagnates.com.
