LONDON (Reuters) - Star British fund manager Neil Woodford sold his fund's stake in HSBC last month, citing concerns about the potential impact of several industry-wide investigations on the banking group.
Woodford's sale comes after banks in Europe and the United States have been fined for a variety of transgressions as regulators increase their scrutiny of financial institutions.
"I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties," Woodford said in a blog posting on his fund's website.
"Not only are these potentially serious offences in the eyes of the regulator, but HSBC is very able to pay a substantial fine," said Woodford, who built a near cult-like status during more than 25 years at Invesco Perpetual.
Investors pay close attention to the bets of high-profile fund managers such as Woodford, who left Invesco Perpetual in April to set up his own fund.
Woodford generated a return of more than 2,200 percent for the Invesco Perpetual High Income Fund, while the FTSE All-Share Total Return index rose 868 percent during the same period.
CF Woodford Equity Income Fund had 2.68 percent of its 2.4 billion pounds of assets in HSBC shares at the end of July, according to the fund's factsheet. That meant the stake was worth 64.3 million pounds ($106.9 million) at the end of July and was the fund's biggest financial sector holding.
HSBC shares, which opened down 0.2 percent, extended their fall to 1.4 percent after Woodford's blog post. The shares were trading down 0.8 percent at 1029 GMT on Monday. By comparison, Britain's FTSE 100 was down 0.1 percent.
The London-based fund manager said the size of any potential fine was an unquantifiable risk.
"A substantial fine could hamper HSBC's ability to grow its dividend, in my view. I have therefore sold the fund's position in HSBC, reinvesting the proceeds into parts of the portfolio in which I have greater conviction," he said.
Companies that have gained Woodford's favour recently are AstraZeneca, BAe Systems, Drax Group and Legal & General, according to the blog.
HSBC shares, a consensus buy for analysts, are trading at 1.1 times book value, above 0.9 times for European banks, according to data from Thomson Reuters StarMine.
(1 US dollar = 0.6018 British pound)
Editing by Simon Jessop and David Clarke