HSBC shares rise after £1.5bn buyback pledge

HSBC cleared top banker now facing £2.7bn fraud trial

22 July

HSBC two years ago conducted its own investigation into a $3.5bn (£2.7bn) currency trade that is now the subject of criminal charges in the US and cleared the top bankers involved.

People briefed on the review, which was conducted in the wake of the global Forex market-rigging scandal in 2013, told the Financial Times it was conducted by law firm Cleary Gottlieb and found no breach of the bank's code of conduct.

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Now the FT says HSBC is re-examining the evidence to "decide whether to support Mark Johnson, its global head of forex cash trading, who was arrested on Tuesday evening at JFK airport in New York".

Johnson is accused of engaging in "front-running" - trading ahead of a client deal using information that is not shared with the customer. He and other executive allegedly "ramped" the price of sterling by buying billions of dollars of contracts before selling them on to their client, oil firm Cairns.

The deal was said to have made $3.5m in trading profit and $5m in fees for HSBC. According to telephone transcripts, when Johnson was told Cairns would go ahead with the conversion despite the spike in the pound, he replied: "Ohhh, f*****g Christmas."

The client challenged HSBC over the rise in the pound prior to the trade, but the increase was blamed on "a Russian name" in the market.

Johnson was released on bail by a New York court earlier this week with the $1m bond met with $300,000 in cash and his property in London. He denies any wrongdoing.

His co-defendant, Stuart Scott, who was previously head of forex cash trading for Europe, the Middle East and Africa, resides in London. A warrant has been issued for his arrest but a formal application for extradition has not yet been submitted.

Scott was fired by HSBC for "separate conduct issues" in 2014. A legal representative said yesterday he "strongly denies the allegations".

The Daily Telegraph reports that for more than a year, Scott was a member of "the Bank of England’s chief dealers’ subgroup, which was set up to inform officials about the mechanics of the market in quarterly meetings". He started the role in December 2011, shortly before the Cairns trade took place.

An investigation into Forex market rigging prompted fines of $10bn back in 2013, but there have been no individual prosecutions to date.

Top HSBC executive arrested over £2.7bn fraud

21 July

A senior HSBC executive has been arrested over a $3.5bn (£2.7bn) currency transaction fraud in 2011.

Mark Johnson, the global head of foreign exchange cash trading in London, was stopped by FBI agents at JFK airport in New York on Tuesday. He was released on $1m (£760,000) bail yesterday.

His arrest is the first to stem from a long-running investigation into alleged rigging of foreign exchange markets.

US prosecutors claim Johnson "corruptly manipulated the foreign exchange market to benefit themselves and their bank", The Guardian says.

A second Briton, Stuart Scott, the former HSBC European head of foreign exchange trading, has also been charged.

The pair allegedly "used confidential information about the deal and the conversion to make lucrative trades for themselves and HSBC, and to the detriment of the client", the Wall Street Journal adds.

The system is known as front-running, or trading ahead - traders make deals based on upcoming orders from clients in order to cash in on the anticipated market movements.

Prosecutors say Johnson and Stuart deliberately caused a spike in the value of the pound in the days before their client was due to convert $3.5bn US dollars to pounds, netting $3m in trading profits and a $5m fee for HSBC.

Transcripts of a 2011 call between the two allege that when Johnson was told the client would go ahead with the conversion despite the spike in the pound, he replied: "Ohhh, f*****g Christmas."

"This case demonstrates the criminal division's commitment to hold corporate executives, including at the world's largest and most sophisticated institutions, responsible for their crimes," assistant attorney general Leslie Caldwell told Bloomberg.

How George Osborne helped prevent HSBC prosecution in US

12 July

Chancellor George Osborne intervened in US Department of Justice proceedings against HSBC and "influenced" an eventual decision not to pursue prosecution in 2012, new documents reveal.

Instead of criminal charges, HSBC agreed to pay a combined $1.9bn (£1.4bn) penalty over allegations it allowed its services to be used by the likes of drugs barons and terrorists to launder money and move funds around the world.

On Monday, a report from the House of Representatives financial services committee published documents from 2012 in which both Osborne and the UK financial regulator warned criminal charges could spark a "financial calamity".

In a message to Ben Bernanke, then Federal Reserve chairman, and Timothy Geithner, then treasury secretary, Osborne wrote that prosecuting a "systemically important financial institution" such a HSBC "could lead to contagion", reports The Guardian.

He added that the US would have been "unfairly targeting UK banks by seeking settlements that were significantly higher than 'comparable' settlements with US banks", says The Independent.

The Financial Services Authority was also "problematic", added the report, and "weighed in very strongly" and caused a "firestorm". Telephone calls from FSA officials also discussed the subjects "included in the Chancellor's letter"

These interventions are said to have "influenced" a decision not to press criminal charges against HSBC.

The Department of Justice concluded such action, which could have seen the bank's licence to operate in the US removed, "could result in a global financial disaster – as the FSA repeatedly warned".

HSBC to keep London HQ despite Brexit

1 July

HSBC, the largest bank headquartered in the UK, has confirmed it will keep its main office in London, despite Britain's shock decision to leave the EU.

Chairman Douglas Flint told a conference of City executives that after completing a ten-month review into whether to move the bank's base away from London, HSBC will stick with its plan to stay.

He added that HSBC had considered the EU referendum and the possibility of Brexit before its final decision but that the result has not changed matters.

The news is "a seal of approval for the country's attractiveness as a financial centre", says the Financial Times.

In a further show of support, Flint issued a robust defence of London against claims that Frankfurt, Paris or Dublin might steal business away.

"Markets go where the expertise and liquidity are," he said. "It is not a question of saying, 'Please take us.' It is a question of saying, 'We’ve got something of great benefit to you.'"

He also pointed to the huge swings on currency markets last Friday as a sign of London's strengths, notes The Times.

"Trading volumes were five or six times what you would see on a normal day but there was the liquidity to cover that and the system did not fall over," he said. "For an international financial system to have real credibility it has to be able to demonstrate… it can cope."

Before the vote, HSBC chief executive Stuart Gulliver said Brexit could result in 20 per cent of its 5,000 London investment bankers moving to Paris.

With UK banks fearful they may lose their EU trading passports, which allow them to do business with the whole of the European Union, several financial institutions are "discussing whether they will need to move European headquarters to the continent to keep the same privileges", says The Independent.

Much of this will depend on whether the UK ends up with a trade deal that denies any access to the single market, a scenario Flint described as "extreme".

Does HSBC's 0.99% rate show market has peaked?

01 July

HSBC is offering house buyers a two-year fixed rate mortgage of less than one per cent, an all-time low rate for the UK.

The 0.99 per cent deal, which has an arrangement fee of £1,499, applies on property up to £500,000 and is available to those with a minimum 35 per cent deposit.

But far from being another indicator that the housing market is soaring, this could mark a desperate attempt to bring in new buyers and a sign that sales have, in fact, peaked, independent housing analyst Henry Pryor told The Independent.

"For me, it’s yet another indication that the market has topped out so as a professional buyer I’m makings sure that deals I’m negotiating today can’t be beaten if the market does fall," he said.

There have been suggestions that house price growth is slowing in the past couple of months, although this view is by no means unanimously shared. Some point to uncertainty caused by the EU referendum, while others say a tipping point in affordability may have been reached.

The Treasury claimed that if the UK votes for Brexit, a drop in demand and a hit to the economy could cause house prices to fall by between ten and 18 per cent in the next two years.

Duncan McCann, a researcher at the New Economics Foundation, said this would not affect customers taking out this mortgage, however. The hefty deposit level would mean that even at the higher end of this forecast fall, homeowners would be a long way from negative equity.

However, he added that this requirement was one disappointing factor of the product, as it meant the low rate would not help squeezed buyers get onto the property ladder.

"Banks want to be seen to be helping people when this will do nothing for those who were not already in the privileged position of having a 35 per cent deposit and the £1,499 fee at hand," he explained.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said the key to getting the best value from the deal lay in overpaying during the two-year period when the rate is so low.

HSBC allows overpayments up to a maximum of ten per cent of the balance each year. Using this flexibility could "increase the amount of equity… and reduce the term of the loan," she said.