HSBC Holdings Plc, Europe's largest bank, agreed to pay $1.92billion to settle U.S. probes of money laundering in the largestsuch accord ever.

The settlement includes a deferred prosecution agreement withthe U.S. Department of Justice, the London-based bank said in ane-mailed statement today. HSBC also said it expects to complete anundertaking with the U.K.'s Financial Services Authority soon,without giving details.

Chief Executive Officer Stuart Gulliver's attempts to reducecosts and improve profitability have been hurt by the U.S. probesand by compensation claims from U.K. clients. A Senate committeesaid in July that lax oversight by top HSBC executives gaveterrorists and drug cartels access to the U.S. financial system.The settlement is the biggest reached in the U.S. over suchallegations, topping the $619 million in penalties paid in June bythe Netherlands' ING Groep NV.

“This has removed an uncertainty, though it doesn't clear thepath completely for HSBC,” said Lewis Wan, Hong Kong-based chiefinvestment officer at Pride Investments Group Ltd., which doesn'thold HSBC shares. “Regulators have been tightening oversight ofbanks. Lenders like HSBC will have to continue to strengthen theircompliance.”

HSBC rose 0.6 percent to 644.8 pence in London. The shares havegained 31 percent this year, giving the company a market value of118.7 billion pounds ($191.1 billion).

HSBC has been in talks with U.S. regulators over allegations itlaundered funds of sanctioned nations including Iran and Sudan,prompting Standard & Poor's to question whether the lender istoo big to be managed effectively.

HSBC handled so-called U-turn transactions through U.S.financial institutions that involved funds from Iran to non-U.S.banks, altering its transaction records to obscure informationabout its clients, according to U.S. Senate testimony in July.

Around 25,000 transactions with Iran worth more than $19.4billion were made with about 90 percent passing through the U.S.,according to an audit by Deloitte LLP. Senate investigatorsdocumented similar transactions with North Korea, Cuba, Sudan andBurma, which along with Iran are subject to sanctions administeredby the Office of Foreign Assets Control.

In a deferred prosecution agreement, the government allows atarget to avoid charges by meeting certain conditions — includingthe payment of fines or penalties — and by committing to specificreforms, either under the guidance of a monitor, or the creation ofan internal compliance panel.

'Past Mistakes'

“We accept responsibility for our past mistakes,” Gulliver saidin the statement. “We have said we are profoundly sorry for them,and we do so again. The HSBC of today is a fundamentally differentorganization from the one that made those mistakes.”

HSBC's forthcoming agreement with the FSA “is probably going tobe a conduct specification of requirements,” said Ian Gordon, aLondon-based analyst at Investec Plc, who has a buy rating on theshares.

Standard Chartered Plc, which like HSBC generates most of itsearnings in Asia, said yesterday it will pay a further $327 millionto settle regulators' allegations that transactions with Iranianclients violated U.S. sanctions. It agreed to pay $340 million tothe New York Department of Financial Services on Aug. 14.

HSBC made an $800 million provision in the third quarter tocover a potential settlement, adding to $700 million it had alreadyearmarked. The bank said on Nov. 5 it will probably face criminalcharges from U.S. anti-money-laundering probes and the cost of asettlement may “significantly” exceed the $1.5 billion it has setaside.

“In an age of international terrorism, drug violence, andorganized crime, stopping illicit money flows is a nationalsecurity imperative,” Senator Carl Levin, a Michigan Democrat whois chairman of the Senate's Permanent Subcommittee onInvestigations, said in an e-mailed statement. “Global banks haveglobal responsibilities to prevent participation in illicit orsuspect transactions.”

Gulliver, who became CEO in January 2011, is seeking to cutcosts by $2.5 billion to $3.5 billion and revive profit by sellingassets to focus on emerging economies in which the bank has agreater market share. Savings will probably exceed that range andbe achieved by the end of 2013, HSBC said last month.

Standard Chartered

The bank said Dec. 5 it will sell its stake in China's Ping AnInsurance (Group) Co. to Thai billionaire Dhanin Chearavanont for$9.4 billion, giving it a $2.6 billion profit.

The bank generated 64 percent of its first-half pretax income inthe Asia Pacific region, up from 47 percent five years ago,according to data compiled by Bloomberg. At Standard Chartered, itslipped to 63 percent from 65 percent.

Standard Chartered in August was accused by Benjamin Lawsky,head of the New York Department of Financial Services, of helpingIran launder about $250 billion in violation of federal laws,keeping false records and handling lucrative wire transfers forIranian clients. The settlement was the largest paid to anindividual regulator as part of a money-laundering accord.

The bank will pay $100 million to the Federal Reserve and $227million to the Department of Justice and the Manhattan DistrictAttorney. The settlement includes a $132 million fine to theTreasury Department's Office of Foreign Assets Control.

Standard Chartered entered into a deferred prosecution agreementwith the Justice Department whereby it will forfeit $227 million offunds tied to the illegal transactions, according to court recordsfiled in Washington.

As part of that agreement, the U.S. charged the bank with onecount of conspiring to violate the International Emergency EconomicPowers Act. That charge will be dismissed after two years ifStandard Chartered abides by the terms of the agreement, accordingto court papers.

HSBC agreed an independent monitor will evaluate progress infulfilling its promises as part of the five-year agreement. Duringthat period, bonuses based on compliance will be deferred,according to a person familiar with the situation who declined tobe identified because the information is private.

HSBC executives including Gulliver did not receive the maximumdiscretionary bonus available to them for 2011 for reasonsincluding the bank's improper sale of payment protection insurancein the U.K. and the advice given to elderly customers on productsto fund nursing-home costs.

Half of Gulliver's bonus for the year was tied to non-financialperformance, including 15 percent for compliance andreputation.

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