Revelations of lax anti-money laundering controls at HSBC are "shameful and embarrassing" for Europe's biggest bank, its boss said on Monday, and it may have to pay out well over $2 billion for the scandal and in compensation for UK mis-selling.
HSBC set aside US$700 million (S$879 million) to cover fines and other costs after a US Senate report criticized it this month for letting clients shift funds from dangerous and secretive countries, notably Mexico.
Chief Executive Stuart Gulliver told reporters the ultimate cost could be "significantly higher".
"What happened in Mexico and the US is shameful, it's embarrassing, it's very painful for all of us in the firm," he said on a conference call. "We need to execute on the compliance changes and then prove ourselves worthy and rebuild this over a number of years. There are no quick and easy fixes."
The Senate report criticized a "pervasively polluted" culture at the bank and said HSBC's Mexican operations had moved $7 billion into its US operations between 2007 and 2008.
"The firm clearly lost its way in this regard and it's right that we apologize," said Gulliver. "Colleagues internally have been aware that this is the backdrop of why we had to change the firm."
The provision ate into first-half underlying profits, which fell 3 per cent from a year earlier to US$10.6 billion, excluding gains from assets sales and losses on the value of its own debt.
HSBC, which was formed in 1865 and operates in 84 countries, said a new streamlined and centralized structure set up by Gulliver has simplified the bank and made it easier to monitor and enforce standards and compliance.
But it also set aside another US$1 billion to compensate British customers for mis-selling them loan insurance, and US$237 million to cover payouts to small UK businesses wrongly sold complex interest rate hedging products.
HSBC is also one of more than a dozen banks under scrutiny in a global interest rate-rigging scandal that has rocked the sector and further damaged the reputation of bankers following criticism of their culture and standards.
"It's very unfortunate and deeply concerning that even the banks considered more secure such as HSBC are so seriously at risk," said a top 30 investor in HSBC.
"And the news is still coming out - we have yet to see the impact, if any, of the Libor investigation and HSBC's role in that. It's hard to see how much more bad news the markets can take," said the investor, who asked not to be named.
Shares in HSBC were up 1.9 per cent to 541.3 pence at 1350 GMT(9:30 pm local time), lagging a 2.8 per cent rise in Europe's bank index.