Industry Updates

ETFs plummet after major banks allegedly involved in money laundering scandal

HSBC shares down to lowest levels since 1998

Tom Eckett

a city skyline at night

A number of ETFs have been impacted this week after leaked documents showed some of the world’s biggest banks allegedly “allowed criminals to launder dirty money”.

The reports, which came out on 21 September, said over 2,100 suspicious activity reports (SARs) accounting for more than $2trn in transaction took place between 1999 and 2017.

The SARs were leaked from the US Financial Crimes Investigation Network, an agency responsible for tackling money laundering.

JP Morgan Chase, HSBC, Standard Chartered, Deutsche Bank and Bank of New York Mellon were all named in the report.

The news sent the banks’ share prices tumbling with HSBC falling as much as 6.8%, its lowest intraday level since 2009 and on course for its lowest close since 1998 during the Russian rouble crisis.

This was also driven by the news the bank could be added to a Chinese list of firms deemed to be a threat to national security.

JP Morgan shares also dropped 4.5% so far this week while shares in Deutsche Bank plummeted 10.1%.

As a result, a wide variety of ETFs that include these banks have been hit. The Amundi ETF MSCI Europe Banks UCITS ETF (CB5) suffered a 5.2% one-day drop on 21 September following the news driven by its 16.1% weighting to HSBC.

Meanwhile, the €248m Lyxor STOXX Europe 600 Banks UCITS ETF (BNK) was down 5.6% on the same day due to its 14.7% weighting to HSBC and 3.4% weighting to Deutsche Bank.

Furthermore, due to its 31.6% weighting to JP Morgan, the $346m Xtrackers MSCI USA Banks UCITS ETF (XUFB) dropped 3.5%.

Richard Hunter, head of markets at interactive investor, said: “With the banks generally under pressure and with interest rates at historically low levels, the immediate outlook is bleak and investors are gravitating towards any of the banks with more obvious prospects, as opposed to those in full firefighting mode.

“The market consensus of the shares as a sell has been in place for some time and is likely to be consolidated following the reports.”

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Moving away from bank ETFs, HSBC’s 4% weighting in the FTSE 100 meant a number of ETFs tracking the flagship index were down 3.5% on 21 September including the iShares Core FTSE 100 UCITS ETF (ISF) and the HSBC FTSE 100 UCITS ETF (HUKX), the cheapest exposures to the index on the European market at 0.07%.