Bloomberg News

HSBC’s Swiss Wealth Unit May Face ‘Significant’ U.S. Fine

May 03, 2012

HSBC Holdings Plc (HSBA)’s Swiss private bank said fines and penalties relating to a tax-evasion probe by the U.S. “could be significant” as it published figures showing clients outflows in the second half of last year.

The terms or timing of a resolution to the Department of Justice and Internal Revenue Service investigations can’t currently be determined, Geneva-based HSBC Private Bank (Suisse) SA said in its annual report published on the firm’s website today. The bank said it’s cooperating with the U.S. probe.

Switzerland and the U.S. are holding talks to resolve an investigation involving 11 Swiss financial firms after the DoJ indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the IRS. HSBC’s Swiss private bank reported a drop in 2011 profit as assets under management fell by 12 billion Swiss francs ($13 billion) to 166 billion francs.

“We also incurred significant expenses for conducting investigations into our past U.S. client-related activities, which were carried out in response to requests from various U.S. government agencies,” HSBC said in the annual report.

Credit Suisse Group AG, Switzerland’s second-biggest bank, set aside 295 million francs for U.S. tax matters in the third quarter of last year. Julius Baer Group Ltd., the wealth manager established in 1890, said the cost of the investigation isn’t “reliably assessable” after the DoJ indicted two employees of the Zurich-based firm.

New CEO

HSBC’s Swiss private bank said in February that Franco Morra replaced Alexandre Zeller as chief executive officer. Morra joined HSBC in 2010 from UBS AG where he was CEO for Switzerland and a member of the Zurich-based firm’s executive board.

First-half net inflows of 6.6 billion francs reported on Aug. 30 exceeded the full-year figure of 2.85 billion francs reported by HSBC today, implying a second-half outflow. Net inflows were 8.1 billion francs in 2010.

A spokesman for HSBC in Geneva declined to immediately to comment on client withdrawals.

HSBC said April 28 it provided names of employees to assist U.S. authorities investigating alleged tax evasion by Americans.

HSBC’s Swiss unit said net income declined for a second consecutive year, dropping 27 percent to 356 million francs in 2011 as the European sovereign debt crisis roiled markets and increased regulation crimped margins.

Data Theft

HSBC’s Swiss private bank last August reported “considerable” outflows from European clients in the first half of 2011 after Hervé Falciani, a former software technician in Geneva, stole details on at least 24,000 accounts. HSBC became aware of the theft in the middle of 2008. The French government has used the data to search for tax dodgers and shared the information with Italian prosecutors.

The bank’s board proposed cutting its shareholder dividend by 63 percent to 300 million francs, according to the annual report.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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