HSBC shares slide after 62% profit fall

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Shares in HSBC have fallen after the bank reported a steeper-than-expected fall in annual profits.

It reported a $7.1bn (£5.7bn) pre-tax profit for 2016, down 62% on the $18.9bn reported a year earlier. HSBC attributed the fall to a string of one-off charges, including the sale of its operations in Brazil. HSBC said its performance had been “broadly satisfactory” given “volatile financial conditions” but warned a rise in global protectionism was a concern. The bank also announced a smaller-than-expected share buyback. That also helped undermine shares, which were down by 5% in London. “It’s a bank that is still in transition after the crisis,” said banking analyst Chris Wheeler from Atlantic Equities.

However, he thinks this could be the last set of results that include big one-off charges, for reorganising the business and writing-down the value of assets.  Alluding to the US election and the UK’s vote to leave the European Union, HSBC said 2016 would “be long remembered for its significant and largely unexpected economic and political events”. “These foreshadowed changes to the established geopolitical and economic relationships that have defined interactions within developed economies and between them and the rest of the world,” said chairman Douglas Flint. “The uncertainties created by such changes temporarily influenced investment activity and contributed to volatile financial market conditions.”

Looking ahead to 2017, the bank said the “outcome of the US election has added to concerns about a rise in protectionism”. “This has been accentuated in many parts of the world by technological change and income inequality.” HSBC said that any “amplification of this trend” would lead to a disruption in global trade and affect its traditional line of business.  The bank confirmed last year it would keep its European headquarters in London, despite the Brexit vote. But announcing the results on Tuesday, Mr Flint said the bank’s current planning suggested it may need to relocate some 1,000 roles from London to Paris over the next two years, depending on how negotiations develop. He added the bank had “broadly all the licences and infrastructure needed to continue to support our clients once the UK leaves the EU”.

‘Digital transformation’

Investors had been expecting a share buyback worth between $2.5bn and $3bn, so were disappointed when HSBC announced a plan to buy back $1bn worth of shares, said Mike Amey, from the giant fund management firm, Pimco. Investors like share buybacks as they typically boost a company’s share price. However, Mr Amey added that Tuesday’s decline in HSBC shares should be put in the context of a 50% rise in their value over the past 12 months. HSBC makes most of its money outside the UK, with Asia accounting for the bulk of its global pre-tax profits. Earlier this year it revealed plans to shut a further 62 UK bank branches in 2017, as more customers conducted their transactions online. The bank closed 223 UK branches last year. Group Chief Executive Stuart Gulliver said the bank was investing more than $2bn in “digital transformation initiatives to improve our offer to customers”. HSBC has been on a cost-cutting drive since 2015, with plans to cut 8,000 jobs in the UK and achieve $5bn in savings.


RBS plans: Williams & Glyn sale should be dropped, UK says

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RBS could abandon the sale of its Williams & Glyn unit, under government plans, after struggling to offload the small-business lender.

The Treasury said RBS would instead provide £750m of initiatives to boost competition in UK business banking. RBS had been ordered by the European Union to sell the unit by the end of 2017 to address competition concerns. The bank failed to sell the business to Santander last year and talks with Clydesdale Bank also stalled. RBS chief executive Ross McEwan said the new plan would deal with the state-owned bank’s EU obligations “more quickly and with more certainty than undertaking a difficult and complex sale”.

Financial crisis

The EU commission still needs to approve the plan, submitted by the UK government. The Williams & Glyn brand disappeared in 1985 after being replaced by the RBS brand, but the unit continues to be an important lender for small and medium sized businesses. The resurrected Williams & Glyn business would have had 300 branches and about 1.8 million customers.


RBS accused of fraud and forgery by customers and ex-employee

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Former business clients of the Royal Bank of Scotland are accusing the bank of systematically manipulating documents to cover up wrong doing.

In an exclusive interview with the BBC, a former RBS employee has come forward to support allegations of document manipulation within the bank. RBS says it categorically denies document manipulation and forgery. Mark Wright started working for NatWest Bank in 1988 and was still there in 2000 when it was taken over by RBS. In 2005, Mr Wright accused two former RBS colleagues of concocting bogus complaints purportedly from five of his customers. He says the employees were from the bank’s Group Compliance Unit established to deter misconduct and malpractice in RBS. He referred to the unit as the bank’s “police”. Mr Wright’s five customers later submitted statements contradicting the bogus complaints. The two accused compliance staff subsequently left the bank.   Mr Wright told the BBC that the bank failed to properly investigate the complaints or accord him the status of whistle-blower. “I had five individual customers who all came forward to me stating that the wording and conversations with this member of staff from group compliance were not their words, so effectively the telephone transcripts didn’t reflect what the customer was saying.” Mr Wright said as a senior manager he had a duty to report the falsifications. “I told my line manager this because he had been affected by the negative rating that Group Compliance had given me over these fictitious five customer complaints and falsifying the customer care calls so I decided to contact them all and the behaviour was the same with all five.”

‘I was suspicious’

Mr Wright said he learned later from colleagues that such misconduct was not uncommon in the bank’s Compliance Unit. “I discovered through a member of staff from Group Compliance that it would be common practice that they would falsify files if they needed to create a certain picture.” Mr Wright said he became increasingly concerned about the way the bank handled allegations of wrongdoing and had wanted a full external investigation because of the serious nature of his allegations. “I was suspicious of wrong doing from 2005 to 2012,” he said.

Mr Wright claims his standing within the bank suffered enormously as a result of his action. His employment status within RBS was changed to “undesirable” when previously he had been classed as “excellent”. Bonuses were also stopped. In 2013 Mr Wright finally took redundancy after his GP diagnosed him with long term mental health issues. The bank upheld one of his grievances. An RBS spokeswoman said the bank was aware of these concerns being raised previously and that they had been thoroughly investigated and responded to. She denied there had been systematic document tampering at the bank.  Mark Wright lives in the constituency of North Norfolk represented by former government minister, Liberal Democrat Norman Lamb. Mr Lamb said he has written to RBS five times to demand a meeting about Mr Wright’s allegations.

How high did this go?

He said: “My fear is that it appears to be more than a few rotten apples behaving badly. There appears to be an institutional culture here that facilitated this corrupt practice. That’s the allegation. “And the way in which they dealt with a whistle-blower, who ought to actually be respected and treated with the utmost seriousness, instead they pushed him through a very long process, the wrong process.” Mr Lamb said: “Treating it as a grievance not going through the proper whistle-blowing process and allowing that individual to be destroyed rather that treating seriously the allegations that he raised and that for me begs the question. How high did this go? Did it go to the very top of the bank? And why are the current leadership not prepared to examine these really serious allegations thoroughly?”  The BBC has also spoken to former business clients of RBS, who also claim fraud and document tampering. The RGL management group is representing many in a planned court action. At least 300 companies plan to sue the bank. James Hayward, chief executive of RGL, told the BBC that the companies were suing RBS on ten grounds of alleged malfeasance including document tampering. “In most cases the end result of what the bank did to their people was the total destruction of their businesses and people’s lives. “These people were intentionally financially and emotionally destroyed. Their only mistake was to trust the bank that they thought was there to help them succeed.” He said he had also seen evidence of document manipulation by the bank.

“If anybody manipulates documents or falsifies documents or forges documents it can only be for two reasons, and that’s to perpetuate a fraud or to cover up a fraud,” Mr Hayward said. “There’s no other reason for doing it. We have come across it. It’s just another instance of an unbelievably appalling sort of corporate conduct.” RBS says it takes any allegations of misconduct very seriously. It’s aware of specific allegations, which have been investigated thoroughly in the past by the bank and, in many instances, externally through bodies such as the Information Commissioner and the courts. The bank added that it had found no evidence to support these customers’ allegations and categorically denied manipulating or falsifying customer records to suit its purposes.


Trump effect ‘has been good for UK’ says central banker

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A boost to financial markets since Donald Trump’s election has helped the UK economy, a central banker has said.

Ben Broadbent, the deputy governor for monetary policy at the Bank of England, told the BBC that some of Mr Trump’s economic plans could help the UK. Mr Trump has promised to cut taxes and boost US infrastructure spending, but also erect trade barriers. “Financial markets have taken a relatively optimistic view so far of what it means,” he told BBC Breakfast. “You’ve seen business confidence rise, particularly in the US, you’ve seen financial markets get more optimistic, and I think that has had some impact on us,” he said.

However, he added that it was too early to know what the full effect of Mr Trump’s policies would be. Global markets were boosted by the so-called “Trump effect” after investors bet on Mr Trump’s policies of infrastructure spending and lower corporate taxation coming to fruition and boosting the US economy. That economic plan would probably help global growth, Mr Broadbent said. The US Dow Jones share index broke through the 20,000 point barrier in late January for the first time ever as investor confidence built. However, US markets have eased back this week amid growing uncertainty.

Mr Broadbent sounded a note of caution about some of Mr Trump’s policies. “There are other things the US administration has said that people may worry more about, or have done in some markets,” he said. “And I should say overall that… there’s a lot we have yet to see about the detailed plans, including those for fiscal policy, for government spending and taxes and so forth, so we’ll have to wait and see. “But so far, at the margin, yes, it’s been positive for global sentiment, and for that reason, and to that extent, for us as well.”


Pound slides ahead of May’s Brexit speech

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The pound has fallen below $1.20 amid reports Theresa May will set Britain on course for a “hard Brexit” in a major speech.

Ahead of the address – in which the Prime Minister is expected to signal that Britain is prepared to quit the European Union’s single market – sterling slid to its lowest level against the dollar since October’s “flash crash” in Asian trade. It also fell to a two-month low versus the euro. But the currency edged up slightly, back above $1.20, after it emerged that Donald Trump had told The Times he hoped a new US-UK trade deal could be negotiated “quickly” after Brexit. The pound is 20% down on the dollar since last June’s referendum – a level not regularly seen since the mid-1980s.

While a weaker sterling makes UK goods more competitive abroad, it means imports are more expensive. Analysts said the latest sterling fall reflected market jitters over the Brexit negotiations and the prospect of Britain crashing out of the European trading bloc. Several Sunday newspapers reported that Mrs May will say the UK is prepared to leave the single market, customs union and European Court of Justice in her speech at Lancaster House on Tuesday. Her red lines for the negotiations will reportedly be an end to free movement from the EU and freedom to strike new trade deals around the world – neither of which are thought to be achievable within the single market.

Downing Street described the reports as “speculation” but the approach appeared to be backed up by Chancellor Philip Hammond – who warned the UK could slash business taxes if it is denied access to European markets after Brexit. In an interview with the German Welt am Sonntag newspaper, Mr Hammond said: “If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term. “In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do. “The British people are not going to lie down and say, too bad, we’ve been wounded. We will change our model, and we will come back, and we will be competitively engaged.”

Kathleen Brooks, an analyst at City Index, said reports of the UK leaving the single market had been “like kryptonite” to traders. She wrote: “The FX market has spoken, and, as of Sunday night, it is not confident that Theresa May can deliver the necessary clarity and confidence when she lays out her Brexit plans.” Sean Callow, a senior currency strategist at Westpac Bank in Sydney, told Bloomberg: “It is difficult to make the case for the pound to avoid testing – probably breaking – the ‘flash crash’ lows in coming weeks.” The flash crash on 7 October saw the pound fall below $1.19 – its lowest post-referendum level – before recovering. A report published last week said the crash, during Asian trading, was caused by a range of factors, including the time of day.

 


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