HSBC's potential Brazil bill adds to legal headache

By Steve Slater

LONDON (Reuters) - HSBC may end up paying as much as $600 million (360 million pounds) to compensate customers in Brazil who lost savings a quarter of a century ago, another in a long list of possible payouts that banks face for past transgressions.

Thousands of Brazilian savers have taken legal action against local banks, including HSBC's unit, alleging they were short-changed when hyperinflation led the government to peg rates paid on savings to a number of indexes. Brazil's Supreme Court began reviewing the case in November.

HSBC said if the ruling goes against banks it could lose anywhere from "a relatively insignificant amount to an amount up to $600 million." It called the top of that range "unlikely".

The case adds to the legal headaches for HSBC and other western banks. Allegations against them range from manipulation of foreign exchange trading to mis-selling of UK insurance policies. When HSBC, Europe's biggest bank, reported 2013 results on Monday, it said it had set aside almost $2 billion for legal proceedings.

HSBC has vowed to instil a more responsible corporate culture after it was fined $1.9 billion in 2012 for lax anti-money-laundering compliance. Chief Executive Stuart Gulliver says he is trying to improve systems, compliance and culture across the bank, but he has warned change will take time.

Legal proceedings and regulatory matters ran to nine pages in the bank's annual report, released on Monday. HSBC said the outcome of many of the items is far from certain, but it warns some could be costly.

HSBC said it had set aside $1.8 billion in provisions for legal proceedings at the end of December, up from $1.7 billion a year before, and $2.4 billion related to compensating customers.

But the bank said it may face damages of as much as $3.5 billion related to lending practices of Household, the U.S. consumer-finance business it bought in 2002. The bank had said previously that damages might reach $2.7 billion.

A probe by the U.S. Federal Housing Finance Agency over allegations it mis-sold mortgage-backed bonds during the housing bubble could lead to damages of as much as $1.6 billion. Several other banks, including UBS, have reached hefty settlements.

HSBC also said it was co-operating with authorities in various countries who were investigating Libor benchmark interest rates, foreign exchange trading and tax reporting requirements of U.S. clients.

HSBC on Monday set aside another $395 million to compensate UK customers who were mis-sold loan insurance or companies that were mis-sold interest rate hedging products. It reported a 2013 pre-tax profit of $22.6 billion, up 9 percent on the year but falling short of analysts' expectations.

(Editing by Larry King)