HSBC investments under investigation

BANKING giant HSBC has called in auditor KPMG to investigate its Investment Management operation after complaints from clients about poor performance and administration.

The inquiry at the bank, which tomorrow is expected to report profits of about £7.5 billion, is said to have been requested by the Financial Services Authority after HSBC admitted problems at Investment Management, formerly James Capel. It is believed that compensation running into hundreds of thousands of pounds has been paid to dissatisfied customers.

One insider said that the initial bill for KPMG's services, which was paid in last year's accounts, had already caused outrage within HSBC. The payment ruled out bonuses to the division's staff.

Three funds managed by the division, including HSBC Select Opportunity and HSBC Market Neutral, have been closed because they performed so badly.

One insider said: 'This is very serious. The FSA is not investigating the underperformance, but is looking at the issue of negligent administration.'

The FSA, led by chief executive John Tiner, refused to comment, while a spokesman for HSBC said: 'I cannot say anything about the confidential relationship we have with our regulator.'

Insiders claim that problems began with the rebranding of James Capel three years ago. It led to the departure of more than 50 key executives, including 35 fund managers. About 12 employees are thought to have taken leave through stress and insiders say morale is at an all-time low.

Staff recently had to sign confidentiality agreements and new employment contracts with sixmonth notice periods. One said: 'HSBC got rid of the James Capel name right at the time the markets collapsed and basically indicated to staff that a star culture would not be tolerated.

'They lost people who had worked there for 20 years and built up the business. They were replaced by staff who were either rapidly promoted or junior employees. These are people who do not have clients.'

The division has also had three chief executives over the period and is now headed by Stuart Pearce. He recently wrote to the division's 12,000 clients telling them that HSBC Investment Management was now working with American consultancy Ibbotson Associates.

It is understood that Ibbotson will come up with a programme setting out how funds under management will be invested. 'All we have to do is buy the stocks,' said one employee. 'Ibbotson will tell us exactly how much and when.'

The HSBC spokesman said: 'I don't think that a significant number of fund managers have left. Client matters are entirely confidential and our clients would not thank us for discussing them.'

He said there had been no significant rise in complaints.