HSBC has taken a dramatic step to stem the growing scandal over its mis-selling of long-term care bonds to elderly customers by offering to compensate investors who bought NHFA products long before the bank bought the scandal-hit investment advisor.
10:04PM GMT 07 Dec 2011
4 CommentsIn a sign of the serious reputational damage HSBC has suffered since being handed a record £10.3m fine for mis-selling nearly £300m of investment bonds to elderly and vulnerable customers, the bank has pledged to examine cases of mis-selling dating back as far as 1991, some 14 years before it bought NHFA.
The move by the bank could dramatically increase the current £29.3m estimate of the cost of compensating customers who lost money as a result of being advised to buy unsuitable financial products by NHFA salesmen.
HSBC bought NHFA for £9m in 2005, but shut the operation to new business in July after discovering serious deficiencies in the way its customers were sold products designed to help them pay for their long-term care.
The backlash against the bank has been swift with public revulsion at the way NHFA customers, who have an average age of 83, were pushed into products that in some cases resulted in their families suffering losses of thousands of pounds when they died before their bond matured.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said NHFA had "breached" the trust of its customers.
Brian Robertson, chief executive of HSBC Bank, said he was "profoundly sorry" at the way NHFA staff had behaved and insisted no customer would be "disadvantaged" as a result of mis-selling.
Sources close to the situation said the move to begin compensating customers mis-sold to by NHFA even before it was bought by HSBC would be done on a "case-by-case basis".
Just under 2,500 customers bought investment bonds between July 2005 and July this year, investing on average about £115,000 in long-term care bonds with a five-year life.
However, in 87pc of the cases examined by the FSA, NHFA was found to have made an "unsuitable sale", with customers encouraged to buy the bonds on which the business's salesmen earned large commissions.
NHFA's three senior managers are each reported to have made millions of pounds from the sale of the business to HSBC, with founder Peter Spiers receiving £3.8m from the sale, while Nick Tyler and Peter Fisher each made £2.85m.
Mr Spiers and Mr Fisher both left the business back in 2008, while Mr Tyler remains an employee of the bank, but is expected to leave early next year.
As yet, the FSA has not launched any individual actions against the three men or any other NHFA staff. It is also not yet known whether HSBC will launch a legal action of its own to recoup commissions paid to NHFA staff for products mis-sold to its customers. A spokesman for HSBC declined to comment.
HSBC, along with all the UK's other major banks, is currently in the process of paying out hundreds of millions of pounds of compensation to customers mis-sold payment protection insurance after conceding defeat on the issue earlier this year.
