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HSBC Swiss Private Bank Profit Declines on Interest Income

August 31, 2012

HSBC Swiss Private Bank Profit Declines on Interest Income

A branch of HSBC Private Bank (Suisse) SA in Geneva. Photographer: Fabrice Coffrini/AFP/Getty Images

HSBC Holdings Plc (HSBA)’s Swiss private bank reported a 4.1 percent drop in first-half profit as a crackdown on tax evasion crimped margins and interest income declined.

Profit fell to 187.8 million francs ($196 million) from 195.8 million francs a year earlier, the Geneva-based bank said in a notice published in the Swiss Official Gazette of Commerce. Interest income slid 17 percent to 262.6 million francs, while revenue from commissions and fees also dropped.

HSBC declined to comment further or provide figures on assets under management and net new money. The Swiss business reported net inflows of 6.6 billion francs in the first half of 2011. That exceeded full-year inflows of 2.85 billion francs reported by HSBC in May, implying a second-half outflow.

The Swiss bank is one of 11 financial firms in the Alpine country being investigated by the U.S. Department of Justice for allegedly helping American clients evade taxes. HSBC said in May that fines and penalties to settle the tax-evasion probe could be “significant.”

Higher costs plus the repatriation of client funds to onshore networks that generate lower fees are cutting profit margins at Swiss private banks, the biggest managers of offshore wealth.

Margin Erosion

“Private banks face intense competition, additional costs due to regulation and compliance requirements and margin erosion,” HSBC Holdings Chief Executive Officer Stuart Gulliver told investors in May. “The traditional Swiss and offshore, for want of a better word, private banking model that was built on secrecy is disappearing.”

HSBC wants its global private bank, which includes units in the U.K., France, Germany and Asia, to contribute 5 percent to 10 percent of the company’s pretax profit. The business reported first-half pretax profit of $527 million, or 4.1 percent of total earnings, the London-based bank said in July.

Worldwide funds under management in private banking increased to $263 billion from $259 billion during the first half of this year, HSBC said in July. That’s still 11 percent less than the $297 billion reported a year earlier. Total client assets, including deposits and non-financial assets in trusts, were $497 billion at HSBC’s global private bank.

HSBC wants to change its target client base from smaller, offshore clients to ultra-high net-worth international and domestic customers. That initiative, along with a review of certain client relationships, resulted in a loss of $1.7 billion of client assets in the first half, according to the bank.

The Swiss unit has suffered “reputational and financial damage” since Herve Falciani, a former software technician in Geneva, stole details on 24,000 accounts, Gulliver said. The French government has used the data to search for tax dodgers and shared the information with Italian, Spanish and British prosecutors.

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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