By Rishav Chatterjee and Selena Li
(Reuters) – HSBC Holdings said on Monday it will book a $1.1 billion provision in third-quarter earnings after losing part of an appeal in a long-running lawsuit linked to Bernard Madoff’s Ponzi scheme.
HSBC acted as service provider to several funds that invested with Bernard L. Madoff Investment Securities LLC. Herald Fund SPC sued HSBC’s Luxembourg unit in 2009 to recover assets it said it had lost in the fraud.
Last Friday, the Court of Cassation in Luxembourg rejected an appeal by HSBC’s unit regarding the return of securities claimed by the Herald, although it accepted its appeal on a separate claim for the return of cash, the bank said.
HSBC now plans to lodge a second appeal with Luxembourg’s Court of Appeal and, if unsuccessful, the bank said it would contest the amount due.
It added that the potential economic impact could differ significantly from its current estimate.
Europe’s biggest bank by assets, which reports its third-quarter results on Tuesday, said in July that Herald, which is in liquidation, was seeking the return of securities and cash worth $2.5 billion plus interest or damages of $5.6 billion plus interest.
HSBC did not immediately respond to a request for comment on the separate securities and cash amounts sought by the Herald. The Herald’s principal liquidators also did not immediately respond to a request for comment.
The bank estimated that the provision would have an impact of approximately 15 basis points on its Common Equity Tier 1 (CET1) ratio.
That would come on top of a 125 basis point impact stemming from its $13.6 billion deal to take its majority-owned Hong Kong unit Hang Seng Bank private.
The charge could weigh on sentiment somewhat but the impact should be limited as HSBC has already suspended share buybacks for the next three quarters due to the acquisition of Hang Seng Bank, said Lorraine Tan, head of equity research (Asia) for Morningstar.
The bank’s Hong Kong-listed shares ended Monday’s session down 1.65%, following a 1% gain for the benchmark Hang Seng index.
Madoff’s fraud was estimated as high as $64.8 billion.
It remained undetected for many years until Madoff confessed to his sons in December 2008, a day after the company’s Christmas party. Madoff ultimately pleaded guilty to 11 criminal counts. He died aged 82 in April 2021 while serving a 150-year prison sentence.
In 2012, HSBC settled with the Kalix Fund for an undisclosed amount, also because of losses the fund had suffered during the collapse of Madoff’s financial empire. The fund had sued the bank for $35.6 million.
(Reporting by Rishav Chatterjee in Bengaluru and Selena Li in Hong Kong; Editing by Edwina Gibbs)
