HSBC Q3 profit rises to $5 bn, confirms forex probe

Reuters

* Q3 profits up 10 pct to $5.1 bln on lower costs,impairments

* CEO gives positive outlook, sees broadening recovery

* HSBC says has not suspended any traders in FX probe

* More provisions for conduct issues; regulatory uncertainty

* Shares up 2.8 pct

By Steve Slater

LONDON, Nov 4 (Reuters) - HSBC reported a 10 percent rise inthird quarter profits on Monday, helped by tighter cost controland fewer losses from bad loans, and confirmed it was beinginvestigated as part of a global probe into currency markettrading manipulation.

Europe's largest bank said underlying pretax profit was $5.1billion for the three months to Sept. 30 - up 30 percent on astatutory basis - with strong Hong Kong and British marketstogether accounting for more than half of earnings andoffsetting a fall in Latin American profits.

Chief Executive Stuart Gulliver said he saw evidence of abroadening recovery in which the U.S. should continue to grow,albeit slowly, and the UK would outperform the eurozone.

"There are signs for optimism around. We've always beenconfident China would have a soft landing ... which issupportive for the rest of Asia-Pacific," he told a conferencecall with reporters.

HSBC said it was cooperating with Britain'sFinancial Conduct Authority, which is leading an investigationinto the $5.3-trillion-a-day foreign exchange market that hasspread to include regulators in the United States, Asia andSwitzerland. Traders from some of the world's top banks,including Barclays, Citigroup and JP Morgan have been suspended or put on leave.

HSBC, which has vowed to instill a more responsiblecorporate culture after it was fined a record $1.9 billion lastyear for lax anti-money laundering compliance, said it had notsuspended or fired any staff, after being contacted in October.

"We haven't suspended anyone. It's at a very early stage andthe names we've been given so far don't work for us any more,"Gulliver said.

HSBC warned of more regulatory uncertainty and set asidemore money for potential settlements or compensation.

It made an extra provision in its private bank to cover aU.S. investigation into U.S. citizens with bank accounts inSwitzerland. Gulliver said agreements with other banks had set aprecedent on the scale of settlement, so HSBC topped up aprovision made in August. It declined to specify how much it hadset aside.

HSBC took another $428 million charge last quarter to covercosts of compensation in Britain - broadly split betweenexpected redress for insurance mis-selling, mis-sold interestrate hedging products, and for UK wealth management customers.

The latter relates to how products were sold in the past towealthy Britons and follows a critical review by the UKregulator last year. Most of the $149 million put aside for thatwill cover the cost of a review into past practice that beginsnext year.

CHEERY OUTLOOK

Despite the mushrooming FX probe, with its echoes of therecent interest rate fixing scandal, investors focused on HSBC'simproved quarterly performance and growth prospects.

HSBC shares rose 2.8 percent to an 8-week high of 707.3pence by 1330 GMT, helping keep the European banking index in positive territory after a call for higher capitalrequirements by the Swiss finance minister hit UBS andCredit Suisse.

"We feel some of the biggest news is the outlook statement.HSBC is traditionally the most dour of all the banks and herethey allude to 'reasons for optimism', 'a broadening recovery'and even state 'China is stabilising'. This is very strong fromHSBC," said Alex Potter, analyst at Mirabaud Securities.

The rise in HSBC's profits, in line with analysts'forecasts, was underpinned by a 4 percent dip in losses from badloans and a $700 million fall in operating expenses to $9.6billion, although that was mainly due to the absence of one-offitems last year..

Underlying costs were up on the year due to investments,wage inflation and regulatory costs. Revenues were flat.

Gulliver said he had pushed through $4.5 billion ofannualised cost savings since 2011, allowing HSBC to absorbsignificantly higher compliance costs, with more than 2,800compliance staff added.

HSBC said its capital position improved and its commonequity Tier one ratio, a key measure of financial strength, was10.6 percent under tough new rules. But it said the regulatorylandscape was uncertain.

"There are a number of unclarified points, which probablycollectively mean that the capital ratio we will be holding willbe slightly higher than we thought two or three years ago,"Gulliver said.

"But it's not a significant raising of the bar...it isn'tthe same as saying we're heading for a Swiss finish," he said,referring to tough Swiss rules that will require banks there tohold significantly higher levels of capital.

Plans by Britain's financial watchdog are still underconsultation, but could require banks to hold core capital of 12percent or more, analysts said.

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