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HSBC Puts Aside $2B For Legal Troubles, Still Faces Libor Risk

This article is more than 10 years old.

(Image credit: AFP via @daylife)

HSBC reported earnings for the first half of 2012 Monday morning, and the headline figures looked decent with profit up 11% from a year earlier to $12.7 billion. Excluding $4.3 billion in profit from asset sales and a $2 billion boost tied to the valuation of its own debt, the bank earned just $10.4 billion, down 8.8% from the prior year.

Revenue was up 4% to $34.8 billion, with particular strength in Asia-Pacific and Latin America, but the primary focus Monday was on the $2 billion the company set aside for legal reserves.

HSBC, like many of its banking peers around the world, is ensnared in a number of lawsuits and investigations related to a number of factors, but in the case of the London-based bank the most intriguing allegations are those in a U.S. Senate report accusing the firm of lax policies against money laundering, which allowed Mexican drug cartels, Iranian terrorist group and others to gain U.S. dollar liquidity in recent years. (See "HSBC Helped Terrorists, Drug Cartels, Report Says.")

In its first-half report, HSBC says it has set aside a $700 million provision based on its best estimate of the aggregate fines and penalties associated with the money-laundering probe. Meanwhile, the firm is also setting aside $1.3 billion for "provisions for customer redress" related to consumer lending.

One investigation the bank is not reserving against is the ongoing probes into Libor manipulation on both sides of the Atlantic that has already cost Barclays $450 million and is likely to ensnare many more banks in regulatory charges and private lawsuits. HSBC said "it is not practicable at this time" to predict the results of the investigations and litigation or the financial impact that may follow.

American depositary receipts of HSBC were up 1.8% Monday morning.