France begins criminal investigation of HSBC Holdings

HSBC Holdings has been placed under criminal investigation by French authorities and made to post €1 billion bail over allegations that its Swiss private banking arm helped clients avoid taxes.

The banking group said it was told by French magistrates that it would be subject to a formal criminal investigation in relation to the conduct of its Swiss private bank in 2006 and 2007.

The move comes five months after HSBC’s Swiss private banking arm was first placed under formal investigation by French magistrates. The bank was also asked to deposit a bail bond of €50 million.

But HSBC said in a statement yesterday that it believed the French magistrate’s decision was “without legal basis” and that bail was “unwarranted and excessive”.

The bank said it “intends to appeal” and would defend itself “vigorously in any future proceedings”.

Public prosecutor

One source said the appeal was because the holding company did not directly conduct private banking, nor was it a credit institution.

Although the French authorities have completed their investigation of the Swiss unit, recommending it stand trial, the final decision is now in the hands of the public prosecutor.

"The sum is larger than we were expecting," said Jon Peace, head of European banks research at Nomura. "Nevertheless, the lack of negative reaction in the stock price suggests that the market is comfortable that the issue will be manageable for a bank the size of HSBC."

Shares in HSBC rose 2.9 per cent to close at 604p yesterday.

UBS was also made to post €1.1 billion bail to French investigators last year to cover a potential fine for alleged money-laundering, as one of a number of investigations into the Swiss lender's cross-border wealth management business. – (Copyright The Financial Times Limited 2015)