Neil Woodford cuts position in HSBC, lender runs risk of "fine inflation"
The increasing number of fines in the banking industry is becoming a growing concern for investors, fund manager Neil Woodford said on Monday.
Woodford, who started his own business after quitting Invesco Perpetual last year, on Monday sold his stake in HSBC claiming that "fine inflation" could prevent the bank from growing their dividends, The Independent reports.
Investigations into the alleged rigging of foreign exchange markets and manipulation of market rates could see HSBC facing "significant financial penalties", said Woodford.
"I started to build a position in HSBC for some portfolios in May last year and I included it in the portfolio of the Woodford Equity Income Fund at launch," explained the fund manager.
"In recent weeks, however, I have started to become more concerned about one particular risk: that of "fine inflation" in the banking industry.
"Banks have attracted many fines in the post-financial crisis world as regulators and policymakers have cracked down on past and ongoing wrongdoings in the industry. The size of the fines, however, appears to be increasing."
Woodford added he was growing concerned the fines were being handed out purely on a bank's ability to pay them.
"I am concerned that these fines are increasingly being sized on a bank's ability to pay, rather than on the extent of the transgression," he said.
"HSBC is a conservatively managed, well-capitalised business with a good spread of international assets," Woodford remarked.
Woodford had invested in HSBC 2.68% of his Equity Income Fund, totalling about 10m shares, with a sub-1% stake in the bank worth almost £65m.
HSBC shares were down 0.96% to 645.90 at 16:16 on Monday.
DC