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It’s still the middle of the night in the UK as this story goes to press, but it’s a sure bet that HSBC (LSE:HSBA) execs are sleeping with one eye open tonight, if they are sleeping at all. Whilst analysts are expecting a strongly upscale 3rd quarter report at 08:15, it could be that no amount of reported increase in profits can offset other news reports that will also see the light of day Monday morning.
The bank is expected to post underlying profit in excess of £3 billion. That would normal boost the bank’s share price substantially, especially in the aftermath of the banking crisis and LIBOR scandal that have hit the UK’s big bank so hard. It may not matter how good the numbers look or how much spin CEO Stuart Gulliver puts on the restructuring of the bank once investors realize that the bank has allegedly illegally racked up some £81.1 million in interest and service charges and that it may have to fork over an additional £936 million in fines for violating US money laundering regulations.
The Interest & Service Charges
Global Witness broke a story on Friday that HSBC has not only violated its own sustainability regulations, but has also provided “financial services to companies widely suspected of systematic bribery and corruption.” The story said reported that, “The companies supported by HSBC have devastated Malaysian Borneo’s rain forests and carried out various abuses against indigenous communities. Sarawak’s logging giants, all past or present HSBC clients, have since expanded their destructive model of business to every major tropical forested region in the world. These companies are currently logging or converting forests to plantations in 18 million hectares of concessions – an area three times the size of Norway.”
Although HSBC paints a slick sustainability picture by declaring that its own regulations require it to stand down from doing business with logging and forestry companies that are not certified by the Forestry Service Council (FSC). Public records show that HSBC has, in fact, been listed as the principle banker for several logging and forestry companies that did NOT meet that standard that the bank instituted in 2004.
Several of the companies receiving financing from HSBC are known to be corrupt and are operating illegally in at least some areas. Global Witness states that “the Shin Yang group is clearing pristine rain forest in an area proposed by the Malaysian authorities for national park status. The company is illegally logging on steep slopes and along river banks. The company allegedly hires armed gangsters to intimidate and assault those who act against the company’s interests.” The Ta Ann group and WTK group are allegedly deforesting pristine acreage in what is know as The Heart of Borneo, which is set aside as a habitat for the critically endangered orangutan. One of these companies deforestation projects caused massive landslides that block a 50km stretch of the region’s largest river. A fourth company, Sarawak Oil Palms, is clearing globally-significant peat forests for building oil palm plantations and is releasing vast quantities of greenhouse gas emissions. “The company also cleared part of a proposed national park that was listed by the Malaysian government as a conservation area for threatened trees.”
The Fines
It’s no secret that HSBC was involved in money laundering schemes that may have affect US security interests and definitely transgress US banking regulations. HSBC set aside £700 million in its half year report in reserves against the pending US government fines. It now appears that the fines are going to be at least double the bank’s earlier expectations. It is expected that Monday’s 3rd quarter report will include an additional £800 million to cover the fines.
It’s going to be an interesting day for HSBC’s share price. Investors and analysts, fasten your seat belts.
