HSBC estimates £96m bill for investment advice mis-selling

HSBC’s final year results for 2013 reveal its bill for investment advice mis-selling in the UK, uncovered as part of a regulatory mystery shopping exercise that targeted a total of six banks, is set to reach £96m.

The results, published today (24 February) reveal HSBC Bank plc, the holding company for HSBC’s European operations, has set aside £96m to cover estimates for compensation related to mis-selling of wealth management products to UK consumers.

HSBC initially revealed an allocation of $149m in its third quarter results in November last year, which would equate to around £86m at today’s exchange rate.

This figure is replicated in the results for parent holding company HSBC Holdings plc, also published today, as being the redress payout accounted for within the bank’s profit before tax for the 2013 financial year.

A spokesperson for HSBC stated that the figures are effectively the same and that the disparity merely reflected exchange rate fluctuations.

However, this is called into question by the fact that HSBC Holdings’ results state a redress figure for 2013 of $1.2bn (£742m at today’s rate), while HSBC Bank plc quotes a total compensation provision as at 31 December 2013 of £1.3bn. A spokesperson for HSBC said the latter figure was the balance sheet “over a period of time”.

Of this £1.3bn figure, HSBC says it has set aside £572m for mis-selling of payment protection insurance policies, down from the £692m as at the end of 2012. HSBC said cumulative provisions made since the PPI judicial review in 2011 amount to £1.8bn.

The group has also set aside £469m for the estimated liability for redress in respect of the possible mis-selling of interest rate swaps in the UK, and £102m for the alleged failings in the sale of card and identity protection products.

HSBC states that the investment advice redress programme is “at an early stage” and there remains a “high degree of uncertainty” as to the eventual costs of redress for this and for all mis-selling compensation.

As part of its mystery shopper exercise, the regulator reviewed practices at six major retail banks between March and September 2012. It found 25 per cent of investment advice given by banks and building societies across 231 mystery shops was of questionable quality.

In 15 per cent of cases the adviser did not gather enough information to ensure advice was suitable; in 11 per cent unsuitable advice was confirmed as having been given.

The bank revealed a jump of 228 per cent in its profit before tax for 2013 to £3.3bn.