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

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.

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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.

Bernard Madoff exits a court in New York City on January 14, 2009. Photo: Reuters alt=Bernard Madoff exits a court in New York City on January 14, 2009. Photo: Reuters>

The case is among a series of lawsuits filed by different parties against a number of HSBC companies arising out of the Madoff fraud. HSBC provided custodial and administration services to a number of non-US funds that invested about US$8.4 billion with Madoff Securities as of November 2008, the bank said in its first half earnings announcement in July.

"Given the pendency of the second appeal and the complexities and uncertainties associated with determining the quantum of restitution, the eventual financial impact could be significantly different," the HSBC statement said.

Story Continues

Bernard Madoff was sentenced to a 150-year sentence in June 2009 after he was convicted of engineering a fraud that was estimated to be worth as much as US$64.8 billion. His thousands of victims included individuals, charities, pension funds and hedge funds. They included actors Kevin Bacon and John Malkovich, and a charity associated with director Steven Spielberg. Madoff died in prison in 2021, at age 82.

In a Ponzi scheme, money from newer investors is used to pay sums owed to earlier investors, creating the illusion of a moneymaking investment.

Separately, HSBC on Monday said it had completed its US$3 billion share buy-back announced in July, at an average purchase price of HK$102.56 per share.

HSBC shares were unchanged at HK$103.10 at the noon trading break on Monday, after the announcements.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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