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

Core Viewpoint - HSBC Holdings will record a US$1.1 billion provision in its third-quarter earnings due to uncertainties surrounding payouts in lawsuits related to the Bernard Madoff fraud case [1][4]. Financial Impact - The provision will affect the group's common-equity tier one capital ratio by approximately 15 basis points, which measures the bank's core capital against its risk-weighted assets [2]. - This provision is classified as a "material notable item" and will not influence the full-year rate of return excluding notable items in 2025 or any dividend payouts [2]. Legal Context - The provision is linked to a 2009 lawsuit by Herald Fund SPC, which is seeking restitution of securities and cash valued at US$2.5 billion, with total damages claimed at US$5.6 billion due to losses from the Madoff Investment Securities collapse [4]. - HSBC's decision to make the provision followed a Luxembourg Court ruling that denied HSBC Securities Services Luxembourg's appeal regarding Herald's claims for securities restitution, although it allowed an appeal for the cash-restitution claim [5]. Ongoing Legal Proceedings - HSBC Securities Services Luxembourg plans to pursue a second appeal before the Luxembourg Court of Appeal and will contest the payment amount if the second appeal is unsuccessful [5]. - The case is part of a series of lawsuits against various HSBC entities stemming from the Madoff fraud, with HSBC having provided custodial and administration services to non-US funds that invested approximately US$8.4 billion with Madoff Securities as of November 2008 [6]. Future Considerations - HSBC acknowledged that the eventual financial impact could vary significantly due to the ongoing second appeal and the complexities involved in determining the restitution amount [7].