A view of the logo of HSBC bank on a wall outside a branch in Mexico City, Mexico, on June 14, 2024.
Henry Romero | Reuters
HSBC said on Monday that it will recognize a provision of $1.1 billion in its third quarter results following a court ruling in Luxembourg related to the Bernard Madoff investment fraud case.
Herald Fund SPC sued HSBC’s Luxembourg unit in 2009, claiming restitution of securities and cash it said were lost in the fraud.
The court denied HSBC unit’s appeal in respect of Herald’s securities restitution claim, but accepted the unit’s appeal in respect of the cash restitution claim.
The bank will now pursue a second appeal before the Luxembourg Court of Appeal, and added that if unsuccessful, it would contest the amount to be paid in subsequent proceedings.
HSBC shares in Hong Kong closed down 1.1%, while its London-listed stock was last trading 1.3% lower.
Madoff was described as the mastermind of the largest investment fraud in U.S., defrauding clients of as much as $65 billion. He pleaded guilty in 2009 to a scheme that started in the early 1970s, ripping off more than 40,000 people in 125 countries over four decades, before being caught on Dec. 11, 2008.
Madoff, whose victims included director Steven Spielberg and actor Kevin Bacon, was sentenced to 150 years in prison. He passed away in 2021.
In its interim report for 2025 released in July, HSBC said Herald had claimed a restitution of securities and cash of $2.5 billion plus interest, or damages of $5.6 billion plus interest from HSBC.
HSBC, Europe’s largest lender, said that various non-U.S. HSBC companies provided custodial, administration and similar services to a number of funds whose assets were invested with Bernard Madoff Investment Securities.
The news comes a day before HSBC is due to announce its results, with the bank saying that the $1.1 billion provision will impact its Common Equity Tier 1, or CET1, ratio by about 15 basis points. The CET1 ratio is a measure of a bank’s financial strength, and is used to determine its ability to withstand distress.
Estimates from analysts compiled by the bank on Oct. 17 had forecast CET1 ratio for the third quarter to come in at 14.5%, compared to 14.6% in the second quarter.
Lorraine Tan, director of equity research for Asia at Morningstar, told CNBC that she does not think that the $1.1 billion charge would have an impact on operations, but it could weigh on sentiment slightly as HSBC was “hoping that these one-off impairments were cleaned up after the interim write-offs.”
HSBC’s allowance for expected credit losses as of June increased by $500 million compared with Dec. 31, including adverse foreign exchange movements of 400 million, and write-offs of $2 billion, according to the bank’s interim report.
Morningstar’s assumption is that HSBC CET1 ratio will be at around 14.4% for the third quarter, and hover at the 14% over the next 10 years.
HSBC, which said that the final financial impact from the ruling could be “significantly different,” given the pending appeals, is currently undergoing a restructuring under CEO Georges Elhedery, and will see the bank split its operations into four divisions.
The bank has said the reorganization will cut costs by about $300 million this year, creating separate “Eastern markets” and “Western markets” sectors.
— CNBC’s Marty Steinberg and Scott Cohn contributed to this report.
