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HSBC to set aside £400m for forex probe

Martin Arnold

HSBC is expected to set aside about £400m ($640m) to cover the cost of an investigation into suspected manipulation of foreign exchange markets when it reports third-quarter results on Monday.

The move would take to $5.6bn the total value of litigation and conduct charges taken by the six banks engaged in talks with the UK Financial Conduct Authority and other regulators about their forex inquiries.

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UBS, JPMorgan Chase, Citigroup, Royal Bank of Scotland and Barclays – the five other banks that are in talks about a simultaneous settlement with the FCA in November – have already taken provisions for this issue.

Alice Tidey | CNBC

HSBC declined to comment. Its charge is expected to be similar in size to the £400m provision announced by RBS on Friday, according to people familiar with the matter. Citi and Barclays this week recorded provisions of $600m and £500m respectively for their impending forex settlements.

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Earlier in October, JPMorgan and UBS set aside $1bn and $2bn respectively, much of which was estimated by analysts to be related to the claims that their investment bankers might have manipulated the $5.3tn-a-day forex market.

HSBC will add its charge for a potential settlement of the forex investigation to a list of litigation and conduct provisions that is likely to exceed $1bn. These will include the $550m it agreed to pay in September to settle allegations from a US government agency that it mis-sold mortgage-backed securities in the run-up to the financial crisis.

It is also expected to put aside another provision to cover compensation it is paying to its UK customers for mis-selling payment protection insurance, adding to existing provisions on this issue of $3.35bn.

More from the FT:
Read MoreUBS in US talks over forex probe deal
Read MoreFCA accuses banks of forex control failure
Read MoreRBS makes £400m provision for forex probe

The FCA has written to the six banks in the past few weeks, accusing them of system and control failures in their foreign exchange businesses and setting a November deadline for final negotiations, according to people familiar with the matter. The simultaneous settlement with the FCA could lead to fines totalling £1.5bn.

There are separate investigations, and the prospect of additional financial penalties, in other countries, including by the US Department of Justice. Citi noted that it was being investigated by the criminal and antitrust divisions of the Department of Justice and the Commodity Futures Trading Commission, as well as the Swiss Competition Commission.

HSBC signed a five-year deferred prosecution agreement (DPA) with US authorities in 2012 after admitting that it processed drug trafficking proceeds through Mexico and transmitted funds from sanctioned countries including Iran. The DPA puts it at risk of a criminal conviction and potential loss of its crucial US banking licence if it commits another crime in that period.