HSBC Sets Aside $1.1 Billion for Madoff Litigation

HSBC Holdings Plc will take a $1.1 billion provision in its third-quarter results to cover potential liabilities tied to investor lawsuits linked to Bernard Madoff’s Ponzi scheme, Bloomberg reported.

The move follows a mixed decision by a Luxembourg court on Friday in a long-running case brought by Herald Fund SPC, which has accused HSBC of failing in its custodian obligation to protect it from fraud. The court rejected HSBC’s appeal on Herald’s claim for restitution of securities but upheld the bank’s appeal on a cash demand, Bloomberg said.

HSBC said it will pursue a second appeal and cautioned that, given the legal complexity and uncertainty around the size of any restitution, the ultimate financial impact could differ materially from the current charge.

Herald’s claims date to 2009, according to the report. In July, HSBC disclosed the fund was seeking the return of $2.5 billion in securities and cash plus interest, or damages of $5.6 billion plus interest.

Analysts at Bloomberg Intelligence, Tomasz Noetzel and Francis Chan, called the provision “manageable” and said it may help clear a longstanding legal overhang.

Others were more critical. “Increasingly, it appears that HSBC has done a poor job in measuring and controlling its legal risk,” said Mark Williams, a master lecturer at Boston University’s Questrom School of Business, told Bloomberg.

HSBC said the Madoff-related provision reflects current information and legal assessments and will be revisited as the appeals process unfolds.