A view of the HSBC bank logo on a wall in front of a branch in Mexico City, Mexico, June 14, 2024.
Henry Romero | Reuters
HSBC said on Monday it will record a $1.1 billion provision in its third-quarter results following a Luxembourg court ruling related to the Bernard Madoff investment fraud case.
Herald Fund SPC sued HSBC's Luxembourg subsidiary in 2009, demanding the return of securities and cash allegedly lost in the fraud.
The court rejected the HSBC entity's appeal regarding Herald's securities refund claim, but accepted the entity's appeal regarding the cash refund claim.
The bank will now lodge a second appeal before the Luxembourg Court of Appeal, adding that if successful it will challenge the amount to be paid in further proceedings.
Madoff has been described as the mastermind of the largest investment fraud in the United States, defrauding clients of up to $65 billion. He pleaded guilty in 2009 to a scheme that began in the early 1970s and defrauded more than 40,000 people in 125 countries over four decades before he was caught on December 11, 2008.
In addition to numerous ordinary investors, Madoff's victims included director Steven Spielberg and actor Kevin Bacon. Madoff was sentenced to 150 years in prison and died in 2021.
In its 2025 interim report published in July, HSBC said Herald had demanded from HSBC a refund of securities and cash of $2.5 billion, plus interest, or damages of $5.6 billion, plus interest.
HSBC, Europe's largest lender, said various HSBC entities outside the U.S. provided custodial, administrative and similar services to a number of funds whose assets were invested with Bernard Madoff Investment Securities.
The news comes a day before HSBC releases its results. The bank said the $1.1 billion provision will impact its common equity Tier 1 (CET1) ratio by approximately 15 basis points. The CET1 ratio is a measure of a bank's financial strength and is used to determine its resilience in emergencies.
Analyst estimates prepared by the bank on October 17 had forecast a CET1 ratio of 128.9 for the third quarter, compared to 128.2 in the second quarter.
HSBC, which said the ultimate financial impact could be “significantly different” given the pending appeals, is undergoing a restructuring under CEO Georges Elhedery that will see the bank split its operations into four divisions.
The bank said the restructuring will cut costs by about $300 million this year and create separate “Eastern Markets” and “Western Markets” sectors.
— CNBC's Marty Steinberg and Scott Cohn contributed to this report.