Claims that some of the world’s largest banks “moved large sums of allegedly illicit funds over nearly two decades”, despite “red flags” about the origins of the money, caused shares in the sector to fall on Monday, say David Pegg and Julia Kollewe in The Guardian. Barclays, HSBC and Standard Chartered were among those hit by the leak of thousands of documents showing $2trn (£1.55trn) of “potentially corrupt transactions” between 1997 and 2017 that passed through the US financial system.
For HSBC investors in particular, these headlines may feel unpleasantly familiar. Eight years ago, the bank was fined nearly $2bn, and forced to agree a deferred prosecution agreement by the US Department of Justice, for “providing banking services to drug cartels and other criminals”, says Katherine Griffiths in The Times. Its Swiss subsidiary was also hit by claims in 2007 that it had been helping clients to dodge taxes. The latest allegations could lead to a “flurry of legal claims” against it from the victims of the fraudsters whom it supposedly helped move money.
An overreaction
Calm down, says Liam Proud on Breakingviews. While it’s true that banks “could improve their systems for spotting money laundering”, the behaviour is “less scandalous than some of the headlines make it sound”. This is because the allegations are based on “suspicious activity reports” (SARs) that the banks must file with the authorities every time they think that criminal activity could be going on. Anti-money laundering systems “catch many legitimate transactions”: one estimate is that 90% of SARs turn out to be false positives. So it’s standard practice for banks to report – rather than block – them.
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This report looks like the least of HSBC investors’ worries, agree Margot Patrick and Frances Yoon in The Wall Street Journal. A bigger concern is that HSBC could be put on an “unreliable entities” list in China that “would threaten the bank’s growth plans in retail banking and in the country’s securities markets”. China’s Ministry of Commerce has said such entities could “face limits on investment and staff in China”. While no companies have been put on this list yet, China’s state-owned media have named HSBC as a possible candidate.
Any action by China against HSBC would be particularly damaging given that HSBC “has invested heavily in the mainland”, says Lex in the Financial Times. China also contributes $1.5bn worth of pre-tax profits, at a time when HSBC’s earnings in the rest of the world have fallen. Having alienated Europe and America, by publicly supporting Beijing’s new security legislation in Hong Kong, the loss of Chinese support would leave it “friendless”. It’s therefore no surprise that its shares “are trading at levels last seen in the 1990s”, a demonstration of why businesses that have become “political shuttlecocks” are “not worthwhile investments”.
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