A picture shows the HSBC Private Bank branch in Geneva on February 18. (Agence France-Presse)
Already forced to apologize for helping clients hide their income from tax authorities, HSBC had to explain on Monday why its chief executive went to lengths for years to hide his bonus, at least from his co-workers.
"This has an everyday explanation to it," Stuart Gulliver, the 55-year-old chief executive of HSBC, said in a conference call to discuss a decline in the bank's profit.
The Guardian newspaper reported late Sunday that Gulliver held at least 5 million pounds ($7.7 million) in a Swiss account through a Panamanian company until 2003.
Gulliver said on Monday that the account was legal and that he had paid all the required taxes, but the disclosure created an additional headache for HSBC that it would most certainly have preferred to avoid.
Gulliver explained that in the 1990s, when he lived in Hong Kong and worked as a banker at HSBC, employees received lump-sum bonuses whose amounts could be viewed by other employees through a computer system. In an effort to protect his privacy - he was the bank's top earner - he put the money in Switzerland to hide it from the prying eyes of his Hong Kong colleagues. But he then had to hide it from his curious Swiss colleagues, so he created an anonymous Panamanian company.
"Being in Switzerland protects me from Hong Kong, being in Panama helps protect me from the Swiss bank," he said.
Such arrangements were not unusual at the time. "It sounds not an unreasonable thing to do given the practices that would be there at the time," said Patrick Stevens, director of tax policy at the Chartered Institute of Taxation.
But as legal as Gulliver's maneuvers were, they compound a problem, at the very least for the bank's reputation, at HSBC, which is still dealing with the fallout from efforts by its Swiss private banking arm to help wealthy clients evade taxes.
Two weeks ago, the International Consortium of Investigative Journalists and other news outlets published details from leaked HSBC files, covering 2005 to 2007. Those files appear to show how the Swiss private bank was complicit in tax evasion and aggressive tax avoidance. Embarrassing details emerged, including the bank's appearing to hand out large sums of cash to clients and providing banking services to people like the friends and families of dictators and criminals.
On Monday, the bank, which is based in London but generates much of its income from Asia, once again offered an apology for what it described as "conduct and compliance failures" in its Swiss unit and said that it had overhauled its private banking business and reduced its client base in Switzerland by 70 percent since its peak.
"We have absolutely no appetite to do business with customers that are evading taxes," Gulliver said.
Stevens said details of the private bank's actions were more problematic than Gulliver's tax situation.
"That is not normal in any way," he said. "It's bad, and whatever follows should follow."
Adding to the bank's woes, Gulliver reported that 2014 profit dropped 15 percent, to $13.7 billion, compared with $16.2 billion in 2013. Pretax profit dropped 17 percent, to $18.7 billion.
The bank lowered a number of targets it had set in 2011, including return on equity, a common measure of profitability. The bank will aim for a return above 10 percent, not the 12 to 15 percent envisioned before, and it will try to increase revenue faster than costs.
"We need to continue to work on simplifying the firm," said Gulliver, who called the profit figures "disappointing."
Shares of HSBC fell 4.6 percent in London.
Despite the bank's problems, Gulliver received total compensation in 2014 of 7.6 million pounds, down from 8.03 million pounds for 2013. He was docked 500,000 pounds for control failures at the bank, including accusations of rigging the foreign exchange markets.
Douglas Flint, HSBC's chairman, defended Gulliver in general and more specifically with respect to his tax disclosures. "There is nothing that Stuart has done that is not absolutely transparent, legal and appropriate."
But investors were once again reminded of the scale of the fines being imposed by regulators for accusations and admissions of wrongdoing, including money laundering and rigging foreign exchange markets.
The bank set aside $1.19 billion in 2014 for settlements of investigations into manipulation of the foreign currency markets. It also reserved $1.28 billion for programs to compensate consumers who were improperly sold products in Britain like payment protection insurance.
HSBC is facing investigations into the past activities of its Swiss unit by the authorities in Argentina, Belgium, France and India. Swiss prosecutors conducted a raid on the unit last week and said in a statement that they had opened a criminal inquiry into possible aggravated money laundering against HSBC Private Bank (Suisse).
Details of the private bank's actions came from leaked files stolen by Hervé Falciani, a former information technology employee of HSBC in Switzerland who now lives in France and is facing criminal charges in Switzerland for breaching that country's bank secrecy laws.
But they also provided details about Gulliver's account.
Gulliver, who was born in Derby, England, left Britain in 1980 after joining HSBC. He has spent the bulk of his 35-year banking career working outside Britain and worked in Hong Kong for many years.
According to The Guardian, Gulliver was listed as the beneficial owner of a Panamanian account in the name of Worcester Equities, a company registered in Panama, containing a balance in 2007 of $7.6 million. His bonuses were paid to that entity until 2003. He became chief executive in 2011.
"He opened the account in 1998 when he was living and working in Hong Kong to hold bonus payments," a spokesman for Gulliver said. "Full tax was paid in Hong Kong on the bonus payments." He said that Gulliver had voluntarily declared his Swiss account to the British tax authorities for a number of years.
Gulliver said he no longer had the Panamanian account. He continues to have a Swiss account, which he is entitled to as a "non dom," short for non-domiciled status.
The status, a quirk of British history left over from the days of the empire, allows people whose fathers were born outside Britain, and those who work abroad for a long time, to keep money offshore and not pay British taxes on it. All earnings in Britain are taxable, though many people structure their pay in such a way to make sure their bonuses, for example, are booked as having been earned abroad.
Gulliver said he remained a Hong Kong resident, paid taxes both in Britain and Hong Kong and intended to return there after he retired.
"Since being posted to the U.K. from Hong Kong in 2003, Mr. Gulliver has paid full U.K. tax on the entirety of his worldwide earnings," his spokesman said.
Not everyone thinks Gulliver's explanation - that the structures were necessary to keep his pay private - qualify as routine.
"It's high-grade tosh," said John Christensen, director of the Tax Justice Network, a research group in London. "What kind of protection does he need from the Swiss bank?"
© 2015, The New York Times News Service