By Steve Slater
LONDON, Feb 22 (IFR) - HSBC said on Monday it is underinvestigation by US regulators over its hiring practices in Asiaas it reported a tough start to the year for some areas of itsinvestment bank.
HSBC chief executive Stuart Gulliver said it had been a"challenging" start to the year for its global markets business,which comprises credit, rates, FX and equities. It had been an"OK" start in global banking, he said.
The bank, the biggest in Europe, said China's economicslowdown will contribute to a "bumpier financial environment"and it echoed some rivals who have said volatile markets coulddepress revenues in the first quarter, which is typically themost important period of the year for investment bank revenue.
"This is the first six or seven weeks of the year, so it'shard to work out if this is the trend for the rest of the halfor whether it's a period of intense market volatility that willpass through," Gulliver told reporters on a conference callafter posting weak fourth quarter results.
HSBC reported a US$858m pretax loss in the three months toDecember 31, hit by higher loan-loss provisions andrestructuring charges. That left its profit for 2015 atUS$18.9bn, up 1% from 2014.
HSBC said it was among a number of firms under investigationby the US Securities and Exchange Commission (SEC) over thehiring of people referred by or related to government officialsor employees of state-owned enterprises in Asia.
The SEC opened a probe into JPMorgan in 2013 regarding thehiring of "princelings", the term used in Asia to refer to thechildren or younger relatives of China's political leaders or ofpowerful executives at state-owned enterprises.
"The SEC has had an investigation going on for some years ona number of US banks and they have now widened that out to abroader group of banks, of which HSBC is one," Gulliver said,describing it as a recent move. The bank said the impact of theSEC's probe could be significant, but declined further comment.
HSBC also warned that a US monitor who is assessing itsanti-money laundering and sanctions compliance following itsUS$1.9bn fine for breaching sanctions in 2012 was not happy withits progress. In a report delivered last month, the monitor"expressed significant concerns about the pace of that progress,instances of potential financial crime and systems and controlsdeficiencies," the bank said.
HSBC said improving its systems remained a work in progress,but added that it will be rolling out an improved global systemthis year. It said it added 2,500 compliance staff in 2015 andnow had 9,000 people compared with 1,600 in 2010.
Global banking and markets (GBM), its investment bankingarm, made a pretax profit of US$1.02bn in the fourth quarter,less than half its profit in the third quarter but compared withan US$85m loss in the fourth quarter of 2014. GBM made a profitof US$7.9bn in 2015, up from US$5.9bn in 2014.
GBM's revenues rose 16% in the fourth quarter from a weakyear-ago period, and for 2015 they were up 7% from 2014.
Equities income jumped 44% last year from 2014, FX incomerose 7%, rates increased 15% and credit income was up 24%.
Like many banks, HSBC is trying to cut costs and reduceassets to improve returns in its investment bank.
HSBC cut assets in GBM to US$441bn from US$516bn last year,representing half of a plan to cut US$140bn of its assets.
HSBC was hit by losses from oil and gas loans in the fourthquarter, also echoing problems reported by US and other Europeanbanks in the past month.
HSBC said it had US$29bn of exposure to oil and gascompanies, and took US$170m of charges against specific oil andgas loans in the fourth quarter and increased its provisions byUS$200m on the basis of oil prices staying near US$30 perbarrel.
HSBC last week said it will keep its headquarters in Londonafter a 10-month review of its domicile, but warned up to 1,000of its GBM staff could have to relocate from London to Paris ifBritain votes to leave the European Union in a referendumscheduled for June 23. (Editing by Ian Edmondson)
HSBC Holdings (HSBA)