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HSBC Gets Warning From Bank of England Over Conduct Issues

Zacks Equity Research

HSBC Holdings plc HSBC recently received a warning for the second time since the last year from the Bank of England for not being able to handle non-financial risks properly. The news was first reported by Bloomberg, citing people with knowledge of the matter.

The non-financial risks mentioned include financial crime, staff misconduct, compliance breaches and issues related to the bank’s culture, and not risks related to the firm’s credit quality.

Per people familiar with the matter, HSBC’s top investment banker, Samir Assaf, informed executives on a conference call this week that he considers the Prudential Regulation Authority’s (PRA) warning as an emergency, which needs immediate attention.

Assaf added that the bank’s global banking and markets division would hold a summit of top executives this month to discuss the issue and come up with a solution.

Per a confidential survey conducted by the Banking Standards Board in the U.K. this year, HSBC ranked last when compared with seven other investment banks in terms of maintaining appropriate work culture and ethics.

Notably, HSBC’s former CEO, John Flint, who stepped down as the CEO in August 2019, was working to improve the bank’s culture with an initiative called the “healthiest human system.”

However, now, as Noel Quinn is the firm’s interim CEO, Flint’s initiatives are not being given primary importance. In fact, Quinn is more interested in reshaping the business through aggressive cost-cutting efforts.

Apart from HSBC, other companies like Deutsche Bank DB, Nomura Holdings, Inc NMR, Citigroup C and some more have also been reducing workforce amid geopolitical tensions like the US-China trade war.

While cost cutting remains a priority for HSBC, it has been adding staff in some locations. In order to drive financials, the company’s primary focus is to strengthen performance by building operations in Asia, including Hong Kong and China. It aims to deliver high-single-digit revenue growth annually from the region.

Moreover, in the U.K., the bank aims at increasing mortgage market share along with growing commercial client base. Also, the bank announced its plan to open 50 new retail branches across the United States.

While global expansion should be given equal importance, HSBC’s primary focus should be to improve its conduct.

In 2012, it had to pay $1.9 billion to settle a U.S. investigation into breaches of economic sanctions and helping Mexico-based drug cartels launder money.

Shares of HSBC have lost 6.5% so far this year against the industry’s growth of 6.2%.

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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