HSBC apologized to shareholders today after disclosing it has to put aside US$700-million to cover the cost of lax enforcement.
The massive provision takes into account possible penalties for violations of the U.S. Bank Secrecy Act—in a case going back two years—as well as any penalties from continuing investigations of alleged violations of economic sanctions against Iran and other countries.
And, though the bank reported an 11% advance in pretax profit in the first half of 2012, it faces further legal troubles. Along with being dented by its recently money-laundering fine, HSBC's first-half earnings were hit by provisions of $1.3 billion for compensating U.K. customers for payment protection insurance.
Additionally, the bank has yet to make provisions for settling potential regulatory fines and private lawsuits, including one pending in the U.S. related to settling the LIBOR scandal.
It acknowledged it failed to report 39 suspicious transactions and had been late in reporting more than 1,000 others in the most recent money laundering case. The bank's chairman, Douglas Flint, says, "We must demonstrate that we've learned from earlier mistakes."
He adds, "The banking industry is operating in a hostile climate so we must double our efforts to convince our regulators, customers and investors that we are striving for the highest possible standards."
Gulliver said new processes and standards were being enforced in all of the bank's global operations.
Despite its troubles, HSBC shares were up 2.4% at 544 pence in afternoon trading in London.
Jonathan Jackson, an analyst at Killik & Co., says HSBC has a "strong funding position, with excess cheap deposits, and is well capitalized."