Caixin
Sep 22, 2020 08:28 PM
FINANCE

HSBC Stock Pummelled by Financial Crimes Report, China ‘Unreliable Entity’ List

A HSBC branch in Shanghai on Sept. 3.
A HSBC branch in Shanghai on Sept. 3.

HSBC Holdings PLC’s Hong Kong-listed shares crashed to their lowest close in more than a decade on Tuesday, hit by the fallout from revelations of the bank’s involvement in facilitating criminal activities and by concerns it may be put on an “Unreliable Entity List” by the Chinese government that could threaten its expansion in the world’s most populous nation.

Europe’s biggest bank by assets saw its shares end the day down 2.05% at HK$28.7 ($3.70) on Tuesday, the lowest close since April 2009, after a 5.3% slide on Monday. Its London-listed shares fell 5.3% on Monday to 288 pence ($3.68), the weakest close since October 1998.

HSBC’s shares have dropped by around 50% this year as the bank has been engulfed in problems. In March, the company announced it was scrapping its dividend, and it’s been hit by falling profits and the Covid-19 pandemic. Investors have been concerned over possible sanctions by the Chinese government over claims that it provided information that contributed to the detention of Meng Wanzhou, Huawei Technologies Co. Ltd.’s chief financial officer, in Canada in December 2018. The bank has also been seen as a candidate for inclusion on China’s “Unreliable Entity List” which was first flagged by the Ministry of Commerce in May 2019.

The ministry announced (link in Chinese) on Saturday long-awaited details of how the list will be implemented, saying that any entity, enterprise, organization and individual put on it could face penalties including trade, investment and visa restrictions. The ministry didn’t name names, but a Twitter posting from the personal account of a reporter at the Global Times, a Chinese state-run newspaper, said HSBC was a likely a candidate. The tweet has since been deleted.

The bank’s shares have lost favor in Hong Kong, where the company has traditionally been viewed as a reliable investment, offering stability and a generous, dependable dividend. But in March, it shocked the city’s investors by announcing that, at the behest of U.K. regulators, it would not pay a fourth interim dividend for 2019 and scrap the first three interim dividends for 2020. It said it also planned to review its dividend policy later in 2020.

HSBC was one of several banks named in a report released Sunday by the International Consortium of Investigative Journalists (ICIJ) which showed that the lenders continued to do business with entities whose suspicious activities they had flagged to U.S. regulators. The report was based on thousands of documents leaked from the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department that collects and analyses information about financial transactions to combat money laundering, terrorist financing, and other financial crimes. The ICIJ report claimed the lenders, which included Deutsche Bank AG, JPMorgan Chase & Co., and Standard Chartered PLC, “kept profiting from powerful and dangerous players” even after U.S. authorities fined them for earlier failures to stem flows of dirty money.

In HSBC’s case, the report revealed that the bank aided a massive Ponzi scheme even while it was on probation with U.S. regulators over its ties to drug kingpins. The leaked documents showed that HSBC allowed fraudsters to transfer millions of dollars through its U.S. business to its accounts in Hong Kong in 2013 and 2014, after the bank was fined $1.9 billion in the U.S. over money laundering and promised it would clamp down on such illegal practices. Analysis from the ICIJ showed that between 2011 and 2017, HSBC identified suspicious transactions moving through accounts in Hong Kong from its businesses in other regions across the world of more than $1.5 billion, of which $900 million linked to suspected criminal activities.

In a response to the reports, HSBC released a statement to the media. “Starting in 2012, HSBC embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions,” it said. “HSBC is a much safer institution than it was in 2012.”

A previous version of this story gave incorrect percentage changes for HSBC's closing share prices.

Additional reporting by Bloomberg.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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