Banking giant HSBC will set aside 1.1 billion US dollars (£826 million) following a court ruling related to a long-running lawsuit over Bernard Madoff's investment fraud. The British lender revealed the provision ahead of its third quarter results announcement on Tuesday.
The decision follows HSBC's partial defeat in a Luxembourg court appeal last Friday. Herald Fund SPC had sued HSBC Securities Services Luxembourg in 2009, claiming losses of cash and securities linked to Madoff's notorious Ponzi scheme.
The Luxembourg Court of Cassation rejected HSBC's appeal concerning Herald's cash restitution claim, though it upheld the bank's position on securities restitution. HSBC plans to pursue a second appeal before the Luxembourg Court of Appeal to contest the payment amount.
Market reaction and Madoff context
HSBC shares fell as much as two per cent in early morning trading on Monday. The provision will impact the bank's common equity tier one capital ratio, a key measure of financial strength, though the final impact remains uncertain due to ongoing appeals.
Madoff, who died in prison in 2021, admitted in 2009 to defrauding thousands of investors of around 65 billion US dollars (£48.8 billion). His scheme ranks among the largest financial scandals in history.
Herald Fund claims
Herald Fund SPC, which is in liquidation, is seeking restitution of securities and cash worth 2.5 billion US dollars (£1.9 billion) plus interest. Alternatively, the fund seeks damages of 5.6 billion US dollars (£4.2 billion) plus interest.
HSBC's Luxembourg arm served as custodian for the European fund that invested money into Madoff investment funds. The bank provided custodial, administration and similar services to numerous funds that had assets invested with Madoff Securities.
Broader financial challenges
The Madoff-related provision marks another blow to HSBC's financial position. Last month, the bank unveiled plans for a 13.6 billion US dollar deal to take its Hong Kong-listed business Hang Seng Bank private, which will also impact its capital ratio and led to suspended share buybacks for three quarters.
HSBC revealed additional financial strain in July with a 2.1 billion US dollar charge covering losses related to its stake in the Chinese Bank of Communications. The bank also faced costs linked to exiting its businesses in Canada and Argentina during the same period.
Sources used: "PA Media" Note: This article has been created with Artificial Intelligence (AI).
