HSBC to book US$1.1 billion provision after Luxembourg court ruling in Madoff case

HSBC Holdings said on Monday (Oct 27) that it will recognise a provision of US$1.1 billion in its third-quarter results after a Luxembourg court ruling in a long-running lawsuit tied to the Bernard Madoff investment fraud.

HSBC became entangled in the Madoff scandal through its role as service provider to several funds that invested with Bernard Madoff Investment Securities. Herald Fund sued HSBC’s Luxembourg unit in 2009 seeking restitution of assets it said were lost in the fraud.

The Luxembourg Court of Cassation on Oct 24 denied an appeal by HSBC Securities Services Luxembourg (HSSL) over the restitution of securities claimed by Herald Fund, but accepted its appeal on a separate cash restitution claim, the bank said.

HSSL will now pursue a second appeal before the Luxembourg Court of Appeal. If unsuccessful, the bank said it would contest the amount to be paid in subsequent proceedings.

HSBC added it will book the provision in the third-quarter results, estimating an impact of around 15 basis points on its common equity tier 1 capital ratio.

The lender added that the provision will be treated as a “material notable item” and will not affect its full-year return on tangible equity excluding notable items or its dividend payout.

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HSBC noted that given the pending appeal and the complexities around calculating the restitution amount, the eventual financial impact could differ significantly from the current estimate.

The case stems from Herald Fund’s claim for restitution of securities and cash lost in the collapse of Bernard Madoff Investment Securities, which was at the centre of the largest Ponzi schemes in history.