HSBC Sets Aside $1.1 Billion Over Luxembourg Court Ruling in Madoff Case

HSBC Holdings announced that it will record a $1.1 billion provision in its third-quarter results following a Luxembourg court decision related to the Bernard Madoff investment fraud. The provision stems from a long-running lawsuit filed by Herald Fund SPC, which sought restitution for assets lost in the collapse of Bernard L. Madoff Investment Securities LLC, the company at the center of one of the largest Ponzi schemes in history.

HSBC became involved in the Madoff scandal through its role as a service provider to several funds that invested with Madoff’s firm. In 2009, Herald Fund SPC sued HSBC Securities Services Luxembourg (HSSL) for restitution of securities and cash. On October 24, Luxembourg’s Court of Cassation rejected HSSL’s appeal regarding the restitution of securities but upheld its appeal on the cash claim.

HSBC confirmed that HSSL intends to pursue a second appeal before the Luxembourg Court of Appeal. If this appeal fails, the bank plans to contest the restitution amount in further proceedings. Despite the legal setback, HSBC stated that the $1.1 billion provision will not impact its full-year return on tangible equity excluding notable items, nor will it affect its dividend payout.

The lender estimated the charge will reduce its Common Equity Tier 1 (CET1) capital ratio by approximately 15 basis points. However, HSBC noted that the final financial impact could vary significantly due to the ongoing appeal and the complex calculation of the restitution amount.

The case underscores HSBC’s lingering exposure to the Madoff scandal, which continues to generate financial and legal repercussions years after the fraud’s collapse.