HSBC preparing for the inevitable

[alecmac18]

HSBC has become the first bank to put a figure on the amount of money it expects to have to return to customers after the current bank charges test case.

More here:

Director of Finance Online - HSBC expects to pay back £300m in overdraft charges


It appears that even though the banks are putting on a brave face for the cameras, they are being forced to quantify and disclose potential losses for the markets.

There is more from Reuters here which includes an even more revealing line ""Based on the facts currently available to it, and a number of assumptions, HSBC Bank Plc estimates that the financial impact could be approximately $600 million," the bank said in its annual report."

http://www.reuters.com/article/ousiv...81126920080303

[alecmac18]

Re: HSBC preparing for the inevitable

Here are the relavent passages relating to bank charges from the HSBC annual report:

(they did thier best to pepper them throughout)

Underlying operating expenses increased by
£651 million, or 10 per cent. Excluding ex gratia
payments expensed in respect of overdraft fees
applied in previous years of £115 million, and a
provision for reimbursement of certain charges on
historic will trusts and other related services1,
expense growth mainly arose from investment in
branch refurbishment and expansion in the UK and
Turkey together with investment in core systems in
France

In July 2007, a group of seven banks
(including HSBC) and one building society
announced that they had agreed with the Office of
Fair Trading (‘OFT’) that the legal status and
enforceability of certain charges applied to their
personal customers in relation to unauthorised
overdrafts should be tested in the High Court.
Certain preliminary issues in the case came before
the High Court in a trial starting in January 2008
and this part of the case concluded in February
2008. At the date of this report, judgement in the
case is awaited. The OFT is also conducting a
market study into competition for personal current
accounts

Operating expenses grew by 12 per cent
mainly due to ex gratia payments expensed in
respect of overdraft fees applied in previous years,
a provision for charges on will trusts and other
related services 6 and, to a lesser extent, investment
in branch, service and distribution facilities.
Further to the July announcement of the test case
discussed on page 188, no new claims for refunds
were charged.

Cost efficiency is a relative measure that indicates
the consumption of cost resources in generating
revenue. Management uses this to assess the
success of technology utilisation and, more
generally, the productivity of the group’s
distribution platforms and sales forces.

On an underlying basis, cost efficiency was marginally
higher than 2006, however excluding charges for
overdraft fee refunds and will trust services
referred to on page 6, cost efficiency fell 60 basis
points.


On 27th July 2007, the UK Office of Fair Trading (“OFT”) issued High Court legal proceedings against a number of UK financial institutions, including the bank, to determine the legal status and enforceability of certain of the charges applied to their personal customers in relation to unauthorised overdrafts (the “charges”). Certain preliminary issues in these proceedings were heard in a trial in the Commercial Division of the High Court on 17th January 2008. This trial concluded on 8th February 2008 and judgement, on the preliminary issues tested, is awaited.

The proceedings remain at a very early stage and may, if appeals on the preliminary issues (or, subsequently on substantive issues) are pursued, take a number of years to conclude. A wide range of outcomes is possible, depending, initially, upon whether the Court finds that some, all or none of the charges should be tested for fairness and/ or tested as common law penalties and, if it does find that some or all of the charges should be so tested, upon the Court’s subsequent assessment of each charge across the period under review. Since July 2001, there have been a variety of charges applied by the bank across different charging periods under the then current contractual arrangements. The bank considers the charges to be and to have been valid and enforceable, and intends strongly to defend its position