Concerns of ‘fine inflation’: Woodford sells HSBC

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Neil Woodford (pictured), manager of the CF Woodford Equity Income Fund announced that he is planning to cut his exposure to HSBC due to growing concerns about the extent of fines imposed by regulators.

Woodford added HSBC only months earlier, in May, it accounted for 2% of its portfolio and was the first UK bank stock in his portfolio since 2003. He justified selling HSBC with growing concerns of “fine inflation”, citing the recent surge in regulatory fines imposed, earlier fines imposed on HSBC, as well as the banks role in the Libor scandal.

Woodford also emphasized that he considered HSBC to be “a well-capitalised business with a good spread of international assets”. Nevertheless, he stressed: “I am concerned, however, that these fines are increasingly being sized on a bank’s ability to pay, rather than on the extent of the transgression.”

He also considers HSBC to be very able to pay a substantial fine, which he considers an “unquantifiable risk”. At the same time, Woodford stressed that he increased his exposure to AstraZeneca, BAe Systems, Drax and Legal & General. “I’m not suggesting that HSBC is a bad investment but in the light of this growing risk, I now view the shares as broadly fair value” Woodford concludes.

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