5:21 a.m. | Updated
LONDON - HSBC Holdings said on Monday that it had set aside a further $800 million connected to a money-laundering investigation in the United States as the bank's net profit halved in the third quarter of the year.
The bank, which is based in London, said it had made the new provision to cover potential fines, settlements and other expenses related to the money-laundering inquiry as the firm continued to negotiate with U.S. authorities. In total, HSBC has now earmarked a combined $1.5 billion for expenses related to the case. The figure does not include legal costs.
The announcement follows a U.S. government report earlier this year that accused HSBC of helping clients to illegally bring money into the U.S. that was linked to drug trafficking activities and from Middle Eastern banks with ties to terrorists.
“We deeply regret what took place took place in the United States and Mexico,†HSBC's chief executive, Stuart Gulliver, told reporters on a conference call on Monday. “A number of people have left the bank and have had clawbacks against their compensation,†related to the case.
The bank added that a resolution to the matter would probably include corporate criminal and civil charges, as well as sizeable fines against the bank. HSBC said some of the charges could be offset through a potential settlement agreement. The firm did not say when a settlement with U.S. authorities could be announced.
The new provisions related to the money-laundering case and additional $353 million set aside to compensate British customers who were inappropriately sold insurance weighed on HSBC's third quarter net results.
The bank said its net profit halved, to $2.8 billion, in the three months through Sept. 30, compared with the same period last year. The British firm also said it had incurred a quarterly charge of $1.7 billion on the value of its own debt.
Without the adjustments, HSBC's pretax profit in the third quarter more than doubled, to $5 billion. The unadjusted figure was slightly below many analysts' estimates.
HSBC's shares fell 2.2 percent in morning trading in London.
As part of a restructuring plan, the bank has been selling assets in countries where HSBC believes it does not have the scale to compete. The sales include HSBC's general insurance businesses in Asia and Latin America, as well as its units in Costa Rica, El Salvador and Honduras. The bank said it had made $500 million of cost savings during the quarter, and it now expects to save up to a combined $3.5 billion by the end of next year.
Despite the weak global economy, the British company, which has large operations in Asia, said pretax profit in its global banking and markets division, which includes its investment banking operations, more than doubled, to $2.2 billion. HSBC's commercial banking unit also saw its pretax p rofit increase 16 percent, to $2.2 billion.
The British firm's dependence on fast-growing markets in Asia and Latin America continued over the quarter. HSBC said it had reported a pretax loss in both its European and North American operations, but posted a $1.8 billion pretax profit in its Hong Kong business, an almost 40 percent increase over the same period last year.
HSBC said it remained concerned about the European debt crisis and potential financial problems in the U.S. connected to the so-called “fiscal cliff,†though the bank said it was optimistic that China's slowing economy would rebound on the back of strong local investment.
“We forecast that growth will recover in 2013 as the impact of accelerated infrastructure approvals and ambitious regional investment plans filter through,†HSBC said in a news release, referring to the Chinese economy. “We also expect to see economic recovery in Latin America heading into 2013, helped by policy s timulus measures across the region.â€
The bank's core tier 1 capital ratio, a measure of a firm's ability to weather financial shocks, rose slightly over the quarter, to 11.7 percent.
