HSBC to set aside US$1.1 billion for potential Madoff fraud payouts

HSBC Holdings will book a US$1.1 billion provision in its third-quarter earnings as it faces uncertainty over payouts in lawsuits related to the Bernard Madoff fraud case, according to a stock exchange filing on Monday morning.

The largest bank in Hong Kong and Europe unveiled the provision a day ahead of its third-quarter results announcement on Tuesday, following a Luxembourg court ruling on Friday.

HSBC said the provision would have an impact of around 15 basis points on the group’s common-equity tier one capital ratio, which tracks the banks’ core capital in relation to its risk-weighted assets. The provision would be classified as a “material notable item” and would not impact the full-year rate of return excluding notable items in 2025, or any dividend payout, it said.

The provision is related to a 2009 lawsuit by Herald Fund SPC, which sought restitution of securities and cash worth US$2.5 billion, or total damages of US$5.6 billion, for its losses in the collapse of Bernard L. Madoff Investment Securities, which was at the centre of the largest Ponzi scheme in history.

HSBC decided to make the provision after the Luxembourg Court of Cassation on Friday denied HSBC Securities Services Luxembourg’s appeal of Herald’s claims for securities restitution, but allowed the HSBC unit to appeal the cash-restitution claim.

The filing said HSBC Securities Services Luxembourg would now pursue a second appeal before the Luxembourg Court of Appeal and would contest the amount of payment if it failed in the second appeal.