HSBC takes $1.4 billion hit on Madoff fraud litigation

Singapore – HSBC Holdings will set aside US$1.1 billion (S$1.4 billion) for 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 1 capital ratio, according to a statement on Oct 27. 

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$2.5 billion plus interest or damages of US$5.6 billion plus interest.

A court in Luxembourg denied HSBC’s appeal in respect of Herald’s securities claim on Oct 24, 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.

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. At the time his Ponzi scheme fell apart, customer statements reflected about US$65 billion in non-existent investments. 

HSBC joins other global financial institutions who have been battling cases. BNP Paribas shares plummeted last week after a court ruling linked it to human rights abuses in Sudan, triggering speculation that the firm will ultimately have to pay billions of dollars to settle related cases. 

Meanwhile, a

Swiss court in October gave fresh hope to Credit Suisse bond holders

who sought damages after their investments were wiped out when UBS Group rescued the bank in a government brokered deal more than two years ago. 

HSBC, which has spent the past year shedding thousands of jobs and stripping out layers of management to rein in costs, earlier in October announced a

US$14 billion buyout of its troubled Hong Kong subsidiary Hang Seng Bank

. In order to keep its capital levels in check as it pays for the deal, HSBC said it will not be buying back shares for at least the next three quarters.

The bank is expected to post a third-quarter pre-tax profit of US$7.66 billion at its results on Oct 28. Investors will be keeping a close eye on its exposure to Hong Kong’s struggling property sector, which is facing stress from the worst real estate slump since the Asian financial crisis in the late 1990s. BLOOMBERG