Getting caught money-laundering for the Iranians and drug cartels is pretty bad for business, as HSBC’s 2012 results demonstrate. But coming into compliance with all these new banking regulations is even worse.

Disgraced though HSBC may be, what with the $ 4 billion-plus it paid in fines to regulators last year, and the 17% drop in profit that entails, the old Hongkong and Shanghai Banking Corp. managed to shrink less than its friends in Frankfurt in an unusual race backwards, thereby dethroning the Germans as Europe’s largest bank.

4Q/2012 Total Assets (exchange rates as of March 4, 2013)
1. HSBC – €2.07 trillion ($ 2.692 trillion)
2. Deutsche Bank – €2.012 trillion
3. BNP Paribas– €1.907 trillion
4. Credit Agricole SA – €1.842 trillion
5. Barclays– €1.72 trillion (£1.490 trillion)
6. RBS – €1.52 trillion (£1.312 trillion)
7. Santander – €1.270 trillion
8. Societe Generale– €1.251 trillion
9. ING – €1.169 trillion
10. Groupe BPCE – €1.147 trillion
11. Lloyds – €1.068 trillion (£924.5 billion)
12. UBS– €1.03 trillion (CHF 1.259 trillion)

And it gets even better:

Despite a $ 1.9 billion fine from the U.S. government for money laundering and a $ 2.3 billion bill to compensate U.K. customers, the U.K.-based banking giant was still able to pay $ 8.3 billion in dividends in 2012 and report a sharply improved core Tier 1 capital ratio on a fully loaded Basel III basis of 9%. This is expected to rise to 10.3% in 2013, close to the top of its target.

Meet Europe’s New Biggest Bank — HSBC [WSJ Deal Journal blog]
HSBC Misses Profitability Targets [WSJ]
HSBC lifts dividend but misses performance targets [MarketWatch]
HSBC’s Unfamiliar Capital Problem [WSJ]