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18 July 2012

Why investors don’t care about the HSBC money laundering scandal

Not a massive deal.

By New Statesman

HSBC are going to be fined up to $1bn for poor anti-money laundering controls in Mexico, which made it a conduit for “drug kingpins and rogue nations”, according to a US Senate committee. Finding that a bank has lax checks on money laundering is nothing new – it happened recently at Coutts, but this time the revelation  “almost puts Barclays in the shade”, writes Nils Pratley at the Guardian.

Well, hardly.

Since the HSBC scandal emerged last week (in an internal memo), shares in HSBC have only dropped 3 per cent – compare this to the 17 per cent fall in Barclays shares since the fine was announced.

Although HSBC’s fine is certain to outweigh Barclays’, the markets have remained fairly unbothered for a few reasons.

First, HSBC’s misdeeds are somewhat overshadowed by the Libor scandal, and second, as detailed in the 340-page US Senate report, the news comes amid that of similar failures  by other banks.

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“The senate chose to release HSBC [‘s fine] as a case study – Lloyds and Barclays have also been prosecuted and fined”, says Sandy Chen at Cenkos. He says that Lloyds was fined back in 2009, and Barclays in 2010, but the figures haven’t yet been released.

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HSBC investors will also be reassured by the fact that the current HSBC chief Stuart Gulliver was not involved in the Mexican fiasco, where as Bob Diamond was very much at the scene of the Barclays Libor fixings.

Lastly, HSBC can put the problem to bed by simply paying the fine and complying with regulators, an option Barclays doesn’t have. Here’s Sandy Chen in a note:

“Because HSBC has cooperated with the US Senate investigation, and because it has begun to implement the recommended changes, we think that US legislators and regulators will be inclined to give HSBC some breathing space.”