HSBC Holdings PLC share price down, misses Q3 forecast as it sets aside provisions

HSBC Holdings PLC stated lower-than-expected third-quarter profit as it set aside provisions to cover any potential fees related to an ongoing investigation into manipulation of the currency market.

Europes biggest bank by market capitalization set aside a $378-million provision to secure legal expenses as it tries to reach a settlement with the Financial Conduct Authority. Additionally it has prepared $701 million for customer compensation in Britain.

This brought to $2.4 billion the total the six banks in negotiations with UK regulators over accusations of manipulating the foreign exchange market have set aside to settle allegations.

“There is a significantly higher cost to running a global bank than historically was the case,” said HSBCs CEO Stuart Gulliver and pointed out that the banks expenses would remain “elevated” in the future.

The bank reported a 4.6% increase in revenue during the recent quarter, but due to the 15% increase in operating costs of $11.1 billion, profit before tax climbed only 2% to $4.6 billion. HSBCs performance missed analysts expectations of a 16% increase in pre-tax profit.

HSBC reported a drastic decrease in pre-tax profit in its global banking and markets division by nearly 50% to $943 million, compared to last years $1.85 billion, and an even bigger decline versus Q2s result of $2.16 billion.

The retail banking and wealth management division also stated a fall in profit, but far less, while commercial banking reported an increase by slightly more than $400 million and global private bankings performance pulled it above the zero mark and up to $190 million.

In Europe, HSBC reached positive pre-tax profit of $493 million, compared to the negative $45 million of last year, although in Latin and North America the companys profits shrank from $220 million and $376 million to $96 million and $58 million respectively.

“The third quarter was a period of continued progress. Excluding significant items, we increased underlying profit before tax in all of our global businesses and maintained a strong balance sheet and a robust capital position“ said Mr. Gulliver in a statement.

HSBC Holdings PLC gained 1.65% on Friday and closed at GBX 639.50 in London. On Monday the stock lost as much as 2.93% in the early trading session, and traded 1.74% lower at GBX 628.40 at 12:56 GMT, marking one-year decrease of 8.57%. The company is valued at GBP 122.73 billion.