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HSBC marks $1.15 billion for fines, paybacks

Bank was tied to $7b in illegal drug money

HSBC is Europe’s biggest bank by market value. It is likely to face US criminal charges over alleged money-laundering.

CARL DE SOUZA/AFP/Getty Images /File 2011

HSBC is Europe’s biggest bank by market value. It is likely to face US criminal charges over alleged money-laundering.

LONDON — HSBC, Europe’s biggest bank by market value, has set aside an additional $1.15 billion to cover potential US fines for failing to stop money-laundering in its Mexican unit and to compensate UK customers for improperly selling payment protection insurance.

The provisions were announced Monday along with a 52 percent fall in third-quarter net profit, to $2.5 billion from $5.2 billion a year earlier.

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The bank raised its total provision arising from the US money-laundering investigation by $800 million to $1.5 billion, though it warned the cost could be much higher. It also set aside an extra $353 million to compensate UK customers, raising the total estimated cost for payment protection insurance to $1.8 billion.

HSBC said it is also likely to face criminal charges in the money-laundering case.

‘‘The US authorities have substantial discretion, and prior settlements can provide no assurance as to how the US authorities will proceed in these matters,’’ the bank said.

This year, HSBC paid a $28 million fine to Mexican authorities for noncompliance with money-laundering controls.

The money-laundering issue stemmed from HSBC’s acquisition of the Mexican company Grupo Financiero Bital in 2002.

A US Senate investigative committee reported that in 2007 and 2008, HSBC Mexico sent to the United States about $7 billion in cash. The committee report said that amount indicated ‘‘illegal drug proceeds.’’

HSBC Mexico acknowledged it failed to report 39 suspicious transactions and had been late in reporting 1,729 others.

Despite the bank’s legal problems, chief executive Stuart Gulliver was upbeat about the company’s performance, with underlying earnings — the bank’s own measure of performance — of $5 billion. That was $2.8 billion higher than last year. Lower impairment charges of $14.6 billion, mainly due to improvements in North America, helped.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the money-laundering and insurance issues were reasons for investors ‘‘to think carefully about entering a sector fraught with unknowns, whilst management outlook comments remained unconvincing.’’ Yet HSBC’s­ performance was ‘‘robust given the circumstances.’’

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