HSBC profits fall 14% after bank flags $1.1bn hit from Madoff lawsuit

HSBC's (HSBA.L) pre-tax profits fell 14% in the third quarter, after the bank set aside a $1.1bn (£824m) provision for a lawsuit tied to Bernard Madoff's Ponzi scheme.

Profit before tax for the quarter came in at $7.29bn, which was below expectations of $7.65bn, according to consensus estimates provided by the bank.

HSBC said that reduction reflected an increase in operating expenses, mainly from notable items in the third quarter, including legal provisions of $1.4bn.

The bank flagged on Monday that it had put aside a $1.1bn provision for costs stemming from a long-running lawsuit brought by investors who lost money in Madoff's investment fraud scheme.

In the lawsuit, which dates back to 2009, HSBC Securities Services Luxembourg (HSSL) is defending a claim brought by Herald Fund SPC for restitution of securities and cash.

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On Friday, the Luxembourg Court of Cassation denied HSSL's appeal over Herald's securities restitution claim but accepted its appeal over the cash restitution claim. HSSL will pursue a second appeal before the Luxembourg Court of Appeal.

HSBC reported profit after tax of $5.5bn for the third quarter, which was 18% down on the same period last year and was lower than estimates of $5.97bn.

However, revenue of $17.79bn was up 5% on the third quarter of last year and beat expectations of $16.72bn.

Net interest income – the difference between what the bank pays out to savers and receives from borrowers in interest – of $8.78bn was 15% higher than the same quarter last year.

Georges Elhedery, Group CEO of HSBC, said: "We are becoming a simple, more agile, focused bank, built on our core strengths. The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters.

"The positive progress we are making gives us confidence in our ability to upgrade our targets and we now expect 2025 RoTE [return on tangible equity] excluding notable items to be mid-teens, or better."

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