Business issues in HSBC's Swiss bank eat into profits

HSBC's Swiss private bank has seen a steep drop in profits since 2008 and even fell to a loss in 2013, showing how problems in the business have hit the British bank's bottom line as well as its reputation.

Its Swiss private bank lost US $291 million in 2013, the last set of published full-year results, and only scraped a US $14-million profit in the first-half of 2014. HSBC is due to release 2014 full-year results on February 23.

HSBC this week admitted failings in compliance and controls in its Swiss private bank after media reports alleged it helped wealthy customers conceal millions of dollars of assets in a period up to 2007.

The Swiss subsidiary's profits have fallen steeply annually since 2008, when they peaked at US $553 million and represented 6 per cent of HSBC's total earnings.

The same year HSBC said it began a radical transformation of its Swiss private bank to prevent it being used to evade taxes or launder money. Swiss-based banks have been under fire for helping clients avoid taxes for several years, prompting a clampdown across the industry.

HSBC has said it has shed clients who did not meet new stricter standards and has spent more on compliance. It said there were a large number of client withdrawals in 2013, the year the Swiss private bank dropped into the red.

HSBC, which had 10,343 Swiss accounts at the end of 2014, compared to more than 30,000 in 2007, this week said past compliance and controls failed, but said its Swiss business had since been transformed.

The Swiss private bank was effectively built from its US $10-billion purchase in 1999 of Republic National Bank of New York and Safra Republic Holdings, banks controlled by Lebanese financier Edmond Safra.

From a US $100 million profit in 2002, the first year that results were broken out, the Swiss bank's profit grew steadily until its 2008 peak. The business made a total US $3 billion profit in the decade to the end of 2012, according to Reuters calculations.

HSBC said the business was not properly integrated after it was bought in 1999.

The same criticism has been leveled at the bank for big acquisitions made in subsequent years, including its purchase of Mexico's Grupo Financiero Bital in 2002 and its US $15 billion buy of US consumer finance firm Household in 2003. Those three deals have been at the heart of many of the bank's problems with US and European authorities.

Current Chief Executive Stuart Gulliver has said the bank has a poor track record on deals. "We're good at running our own businesses, we're not so good at making acquisitions," he said in 2012.

Tax authorities are investigating details of HSBC's Swiss clients and the renewed scrutiny has sparked a political row in Britain over which parties had links to people who held the accounts.

(Reuters)