LONDON: HSBC Holdings Plc will set aside US$1.1bil to cover litigation by investors who lost money in Bernard Madoff’s fraud, joining other global banks unexpectedly hit recently with ballooning costs on various cases dating back years.
The provision will be recognised in its upcoming third quarter of 2025 results, and will have an impact of around 15 basis points on the group’s common equity tier one capital ratio, according to a statement.
HSBC is defending a claim brought by Herald Fund SPC that dates back to 2009 for restitution of securities and cash.
In July, the bank disclosed the fund was seeking the return of securities and cash of US$2.5bil plus interest or damages of US$5.6bil plus interest.
A court in Luxembourg denied HSBC’s appeal in respect of Herald’s securities claim last Friday, but accepted the one in relation to a cash demand, the statement said. HSBC, based in London, will now pursue a second appeal.
Because of the pending second appeal and the “complexities and uncertainties associated with determining the quantum of restitution, the eventual financial impact could be significantly different,” HSBC said.
“Increasingly, it appears that HSBC has done a poor job in measuring and controlling its legal risk,” said Mark Williams, a master lecturer in the finance department at Boston University’s Questrom School of Business.
Investors initially brushed aside the provision in Hong Kong early trading with HSBC shares up 0.3% as of 11.38am Hong Kong time. The “manageable charge” helps clear a longstanding legal overhang, said Tomasz Noetzel and Francis Chan, senior analysts at Bloomberg Intelligence.
Multiple banks are still defending against Madoff’s Ponzi-scheme litigation. Madoff pleaded guilty in 2009 and was sentenced to 150 years in prison, where he died in 2021. — Bloomberg
