Of Special Interest


[x] [x]

24th July 2012

HSBC - Gulliver's position untenable?

Stuart Gulliver, HSBC CEO, was head of Global Markets (later Global Banking and Markets) throughout the period the bank failed to apply many Anti Money Laundering (AML) controls and many billions of dollars of suspected illegal funds were transferred across borders. Throughout much of the time he was also a director of HSBC North America Holdings Inc and HSBC Latin America (UK) Limited. This is relevant because some of the most serious abuses identified was of suspected drug money transfers from Mexico to the US.

In terms of the scale of wrong doing the failure of HSBC to apply AML rules or react to many warnings of money laundering during the period has far greater significance and impact on the real world than the Barclays derivative traders distorting the Libor rate. The number of Barclays personnel involved in the early Barclays Libor fixing for profit action are believed to number no more than a handful and those involved directly or who must have known about the HSBC failure to apply AML controls very much larger. Yet the Barclays incident cost the job of Bob Diamond, CEO and like Gulliver former head of the unit involved, as well as that of the chairman and another senior investment banker. So far the only event at HSBC was the retirement of the former HSBC Mexico head earlier this year, apparently for genuine other reasons.

It would seem unlikely the US will want to settle for anything less than Gulliver's resignation. The UK media has continued to be dominated by the wrong doings at Barclays. HSBC's wrongdoing has so far attracted only modest attention from either media or politicians. The UK regulators, in the process of changing structure, are now seeking to portray a much tougher persona. It would seem difficult to see how they can do other than seek Gulliver's exit. Most of all because no one including the bank itself, is capable of explaining how such widespread failure to apply known rules could continue for so long and despite so many warnings. One of the most damning pieces of evidence came from one of HSBC's own compliance chief's during his exit interview, and yet no action followed.

Another difference so far is that Barclays share price has fallen around 20% due to its 'scandal' whilst HSBC share price has fallen around 6%. It would be dangerous to assume from this that the long term effect on HSBC will be less than that of Barclays.