HSBC warned of manipulation risk

Business | Bloomberg and Avery Chen 12 Jul 2019

HSBC's (0005) auditors cautioned top executives that pressure to meet earnings targets gave managers an incentive to massage their numbers.

The warning contained in the bank's 2018 annual report from Pricewaterhouse Coopers focused on chief executive John Flint's aim of driving revenue at a faster pace than costs. It has been at the heart of his strategy to improve returns at the lender, whose global network stretches from New York, London to Shenzhen.

Flint's goal increased the "incentive for management to override controls to meet targets," according to the auditor's summary, which was on page 211 of HSBC's 322-page filing. In the comments, which has never been reported, the accounting firm wrote the measure was vulnerable to misstatements because it was "highly sensitive to small changes."

PwC, the bank's auditor since 2015, performed "a number of incremental procedures which might indicate that revenue or costs were intentionally misstated," it said in the HSBC report. There was no evidence of wrongdoing, according to a person who asked not to be identified discussing a confidential topic.

At a global leadership summit held in Hong Kong in March, Flint rebuked top managers for missing revenue and cost targets, calling out executives for their "incompetence" and their inability to keep a rein on costs. As HSBC missed that goal in 2018, he reiterated the promise for 2019.

Meanwhile, the Hong Kong Monetary Authority denied the rumor which alleged a local bank may have financial problems due to mainland loans.

It said the claims are untrue and totally unfounded and urged members of the public to exercise discernment when dealing with online information.

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