HSBC Private Bank Reverses Outflows on Asia After Data Theft `Stress Test'

HSBC Holdings Plc’s Swiss private bank said new money from Asia offset first-half client outflows from Europe as tax authorities in France and Italy scrutinize account details stolen by a former employee.

Net inflows totaled 4.9 billion Swiss francs ($4.76 billion) with more than half coming from Asia, the Geneva-based bank said today in a statement. Outflows from Europe and Israel were about 600 million francs while fund of hedge fund redemptions totaled 300 million francs, HSBC said.

HSBC said in March that Hervé Falciani, a former software technician in Geneva, stole details on at least 24,000 accounts. The French government has used the data to search for tax dodgers and in May shared the information with Italy’s prosecutors, including the identities of 5,728 Italian citizens and companies holding Swiss accounts valued at $6.9 billion.

“This regrettable event has been extremely annoying but won’t put the future of the bank in danger of any sort,” Chief Executive Officer Alexandre Zeller told reporters in Geneva today, adding that the theft probably explained part of the outflows in Europe. “Our bank has just gone through the biggest stress test we’ve ever had.”

Managed assets increased 3.1 percent to 195.1 billion francs over the six months through June, with 1 billion francs of net new money from Latin America and 400 million francs from the Middle East and Africa. Outflows from the bank totaled 4.1 billion francs in 2009.

Chinese Motor

“In the second half for net new money, we’ll have the same trend, continued inflows from emerging markets and a resilience in the European market, which will probably shrink slightly,” Zeller said. Clients with links to China are the “motor” of emerging market demand, he said.

HSBC, which plans to spend 103 million francs on improving security, said Falciani probably took the data while working on a project to transfer client information between computer systems.

HSBC said it became aware of the theft in the middle of 2008 and Falciani was arrested in Switzerland in December of that year after being denounced by a colleague. He later left the country for France, where, under police protection, he is cooperating with investigators.

The stolen data includes “many errors” and the names of people, such as lawyers and trustees, who don’t have private bank accounts, HSBC said. The bank’s chief financial officer, Leigh Robertson, said that while he only has one account, his name appears 586 times on the list.

‘Not Finished’

“Today, I can’t look you in the eyes and say the matter is finished,” said Zeller. “It’s not finished. There are still clients reflecting what to do.”

Falciani told Bloomberg News earlier this month that he’s cooperating with French investigators and helped them pull embedded data from his laptop. The technician says he didn’t profit from the data and accepted police protection in France out of fear that account holders might try to harm him.

As of mid-July, the Swiss attorney general’s office said it was continuing the data-theft probe of Falciani, who hadn’t been charged.

Swiss secrecy laws threaten bank employees with as much as five years in jail if they divulge client information. That hasn’t stopped employees from stealing data.

The willingness of governments to use stolen data to identify tax evaders has led to tension with Switzerland’s neighbors France and Germany. German government officials have bought computer disks containing details stolen from LGT Group in Liechtenstein and another incident that led to probes against Credit Suisse Group AG.

HSBC, which opened a new branch in the ski resort of Gstaad during the first half, said it will refocus on the Swiss market.

Profit at the bank fell 26 percent to 304 million francs in the six months through June because of lower net interest income and after a gain of 28 million francs from the sale of two buildings in the year-earlier period wasn’t repeated.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net; Warren Giles in Geneva at wgiles@bloomberg.net

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