HSBC faces probe of princeling hires after US$1.33bn fourth-quarter loss
Conflict of interest concerns weigh on bank as US regulators widen net
HSBC admitted on Monday it is facing investigation by the US securities regulator for hiring mainland princelings as it reported a US$1.33 billion loss in the fourth quarter and a much-lower-than-expected full-year result last year.
HSBC said in its result statement the US Securities and Exchange Commission was investigating it and other financial institutions for their hiring of princelings – the children or relatives of senior mainland officials – in the Asia-Pacific region because of concerns about conflicts of interest in securing deals from mainland state-owned enterprises.
“HSBC has received various requests for information and is cooperating with the SEC’s investigation,” the bank said. “Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”
It was the first time HSBC had said it was involved in the probe, which had previously ensnared lenders including JPMorgan.
HSBC, the largest lender in Hong Kong and Europe, reported a fourth-quarter net loss of US$1.33 billion, against a profit of US$511 million a year earlier, while its pre-tax loss during the quarter stood at US$858 million, compared with a gain of US$1.73 billion a year earlier. It was the first quarterly loss reported by the bank since it began releasing quarterly results in 2011.
On a whole-year basis, HSBC’s pre-tax profit rose 1 per cent to US$18.87 billion, from US$18.68 billion in 2014, short of market estimates of 16 per cent growth.
READ MORE: HSBC under SEC probe for ‘princeling’ hiring in Asia; shares suffer after worse-than-expected earning
The poor result was accompanied by more bad debt, with loan impairment charges up 17 per cent year on year to US$3.72 billion. However, it paid a dividend of 51 US cents per share, compared with 50 US cents in 2014.
The poor performance, announced during the stock market’s lunchtime break, saw the bank’s shares close the day 2.19 per cent lower at HK$49.15.
The bank decided last week to keep its headquarters in London. Its result, however, showed Asia remained the largest contributor. Its pre-tax profit contribution from Asia for all of last year increased to 83.5 per cent, up from 78.3 per cent in 2014.
HSBC chairman Douglas Flint said Asia, and particularly mainland China, would remain its key growth driver. “China’s slower economic growth will undoubtedly contribute to a bumpier financial environment, but it is still expected to be the largest contributor to global growth,” he said.
HSBC chief executive Stuart Gulliver said the bank would continue to expand in the Pearl River Delta and in yuan business in the year ahead.
Louis Tse Ming-kwong, director of VC Brokerage, said HSBC’s result was disappointing. “The global economic slowdown has had an impact on the bank, which has exposure worldwide,” he said. “It will remain challenging for HSBC in the year ahead.”