Financial regulator slapped a record 10.5 million pound fine on HSBC on Monday for mis-selling investments to pay care home costs for older customers.
Europe's biggest bank is likely to pay another 29.3 million pounds in compensation to particularly vulnerable elderly clients, who were given inappropriate advice by HSBC's NHFA subsidiary, the Financial Services Authority said.
The advice was unsuitable because in many cases the life expectancy of customers was below the minimum recommended five-year investment period.
The average age of NHFA's clients was almost 83. One client was 94 at the point of sale and had a life expectancy of 3 years and 3 months, the FSA said.
The fine, the biggest-ever for a retail banking offence, comes at a time of low public trust in banks following the financial crisis, which required taxpayers to bail out lenders in several countries.
British banks are alreafy having to pay billions of pounds to compensate customers wrongly sold payment protection insurance (PPI), which allowed borrowers to keep up debt repayments in case of loss of income.
NHFA was trusted by its vulnerable and elderly customers. It breached that trust to sell them unsuitable products. This type of behaviour undermines confidence in the financial services sector, said Tracey McDermott, the FSA's acting director of enforcement and financial crime.
HSBC said on Monday it is cutting 550 UK jobs as it reorganises due to the very challenging economic environment.
Banks are being forced to hold more capital and liquidity to make them safer, prompting many banks to review their business model. Most job losses are in its commercial bank arm, and about 220 of the positions being cut will be redeployed in the bank.
The losses are part of a plan to cut 30,000 jobs globally as Chief Executive Stuart Gulliver streamlines the business to make it more profitable.
NHFA was the leading supplier of independent financial advice on long-term care products in Britain, with a market share of near 60 percent.
The FSA said between 2005 and 2010 some 2,485 customer were advised to invest in its products, and unsuitable sales were made to about 87 percent of them. Some 285 million pounds was invested during the five-year period, or an average investment of 115,000 pounds.
HSBC Actuaries and Consultants Ltd (HACL) bought NHFA in 2005 and the business was transferred to HSBC UK Bank operations when HACL was sold in 2009.
NHFA gave advice through a network of between 15 and 31 advisers on structuring finances to meet care costs, and advised around 11,000 customers during the period under review.
This should not have happened and I am profoundly sorry that it did, said Brian Robertson, chief executive of HSBC's UK business. We are undertaking a full review of the advice given to impacted customers and I can guarantee that every customer who is found to have not been treated fairly will not be disadvantaged.
HSBC closed NHFA to new business in July, it said. ($1 = 0.6399 British pounds)
(Editing by David Cowell)