Banks Being Banks: HSBC Slapdown

banks being banksIn a recent November 25, 2014 Wall Street Journal online article by Katie Martin here, we learn, once again, that international banking behemoth HSBC has been caught with its hand in the cookie jar.  This time, the scandal relates to the leaking of confidential client information to a hedge fund.

Confirming that the bank’s top execs believe it is better to seek forgiveness than permission, as HSBC was being investigated as part of a DOJ criminal investigation, it “self-reported.”   Apparently, HSBC had been advising British insurer Prudential PLC, “…on a huge acquisition and was working on a related multibillion-dollar currency transaction.”

Six banks, including HSBC, was fined $4.3 billion “…for failing to stop employees from improperly sharing confidential information with rival banks and for attempting to boost currencies-trading profits at their customers’ expense.”

Herewith some quotes:

  • The events in question surround HSBC helping Prudential sell billions of pounds and buy billions of dollars to finance the insurer’s planned $35 billion acquisition of the Asian life-insurance unit of American International Group Inc.
  • The HSBC trader also allegedly sold large quantities of pounds ahead of Prudential’s order, they say, gaining a likely profit given that he, and any other parties he allegedly had informed, knew about the larger transaction for the bank’s client.
  • That day, the pound plunged nearly 3% against the dollar. There were no obvious triggers for the unusually sharp drop, leaving befuddled traders and analysts searching for an explanation.

So here’s what’s interesting:  HSBC had already been taken to the woodshed in 2012, when it entered into the standard deferred prosecution agreement or DPA, also known as a “Get-Out-of-Jail-Free Card,”   with the Justice Department by paying $1.9 billion to settle allegations that it violated U.S. anti-money-laundering laws. The agreement provided that HSBC had to keep its act clean for five, count ‘em five whole years, or suffer “potentially greater penalties” – whatever that means.

HSBC Chief Executive Stuart Gulliver bravely said that “We don’t believe it [the Prudential investigation] represents a criminal act that would represent a breach of the DPA,” HSBC said earlier this month.

The Journal artcle reported that “HSBC said at the time that it ‘does not tolerate improper conduct.’” And in an effort to show that it meant what it said, HSBC did what any self-respecting Big Bank does; it threw two of its traders under the bus. Problem is, according to the WSJ article, “…neither [trader] specialized in trading sterling, as the British pound is known, and neither was involved in this alleged transaction.”