The net profit of the global banking corporation HSBC dropped by about 17 percent in 2012, in comparison to the previous year because of many reasons. Chief amongst them are the hefty fine it had to pay to for money laundering case, as it squared off a large amount of bad debt, selling some financial policy in an in appropriate way and dropping of its share prices. The net profit of the biggest banking house in the year 2012 was about $ 14.03 billion, whereas in 2011 it rose up to $ 16.2 billion. Therefore, not meeting up with the expectation of the financial experts and analysts.
Money Laundering from Mexico, the Linchpin in Drug Dealings
Money laundering is an illicit money transferring process which is carried on with the aim of camouflaging the proceedings of an unlawful activity, like financing drug dealings or terrorist activities. In December 2012, HSBC was fined $ 1.92 billion by the US Officials as this banking house has contravened the money laundering laws and transmitted about $ 7 billion from Mexico, a country that comes under the US sanctions.
The officials of the compliance cell of HSBC apologized to the US authorities and admitted that HSBC does not have an effective control mechanism which makes it susceptible to money laundering which are used for funding heinous activities like drug trafficking, terrorist activities or supporting rogue nations.
Though HSBC claims to spend a large amount on compliance but the US Senate officials considered it to be inadequate. There were only about four officials for looking after transactions of about 500 customers and Mexico was not put in the high risk category, thus resulting in lapses. After being convicted of such a disgraceful offence, the US government might restrict its business with HSBC which will negatively impact its revenue earning capacity as well as reputation.
Inappropriate Selling of Financial Policies in UK
Apart from shedding a huge amount of fine to the US government, the bank also had to compensate the customers of UK with a fine amount of about $ 2 billion.
A long list of UK based clients of the bank was inappropriately sold some financial products as a result of which the bank started receiving complaints soon enough in large numbers. Therefore, the bank had to provide monetary compensation for the disgruntled clients which signify loss from its UK operations.
Squaring Off Bad Loans
The banking house also paid off a bad loan of about $5.2 billion from its net profit. So it has been able to safeguard itself from paying excess money that it might have been susceptible to due to the rise in tax 18 percent. Thus it was safeguarded from being hit by the economic depression that is plaguing Europe and US. However, the fact that the business house could not invest its profit for expanding their business cannot be ignored.
Reaction of Investors
Obviously, the investors were not at all happy with the performance and current occurrences related to the bank. They were not ready to invest on the shares of this banking house, as a result the price of the share of HSBC went down by about 3 percent. However, the trade analysts are of the opinion that the prices are soon going to go up as the fines have been paid.
Damage of Reputation
Money laundering charges seriously affect the reputation of the financial institutions who are involved in it. The investors and customers of the banking house will lose their faith on the financial institution which is extremely derogatory to the image as well as the business of the banking house. This might have a negatively impact on the revenue generating capacity of the banking house in the long run.
However, this banking house has earned a huge profit from its wings in the Asian market which has helped it to overcome the difficulties it was facing in the recent times. The Chairman and CEO of the organization have assured the US authorities to tighten up their compliance cell so as to avoid any such occurrences in the near future.
The above article is submitted by the Author of http://www.burtoncopeland.com/ who are one of the leading financial companies.