US court fines HSBC US$2.46 billion over Household International case
The bank plans to appeal the verdict that its former unit violated federal securities laws
HSBC has been ordered by a Chicago court to pay about US$2.46 billion in a class action lawsuit against its former Household International unit for violating federal securities laws, a verdict the British banking giant plans to appeal.
The verdict against Household International, the credit card and mortgage lender the group acquired in 2002, follows a costly US$1.92 billion settlement over money laundering last year.
HSBC had made a US$1.7 billion provision related to legal proceedings and regulatory matters in its first-half results.
“HSBC has already made some provision on the case but I expect it is likely to make further, subject to appeal [results],” said Keefe Bruyette & Woods analyst Mark Phin.
The group is trying hard to control costs, including exiting India’s retail broking and depository services. However, it might have to face huge legal costs on the case, according to Investec Securities analyst Ian Gordon.
The judgment in Chicago was the largest in a securities fraud class action that went to a trial, according to a statement from the Robbins Geller Rudman & Dowd law firm that represented investors. Almost all securities fraud class action cases settle before going to a jury.
The suit was filed in 2002 and alleged Household International, its chief executive, chief financial officer and head of consumer lending made false and misleading statements that inflated the company’s share price.
The plaintiffs also claimed that Household artificially boosted its share price by engaging in predatory lending and hid the quality of its loan portfolio and its financial accounting from March 2001 to October 2002.
HSBC believes it has a strong case and plans to appeal, according to an HSBC spokesman. He added that the matter has been noted in HSBC regulatory filings.
HSBC had expected damages of US$2.7 billion, according to its interim report published in August. If an appeal fails, the losses could exceed US$3.5 billion, but a provision had been made based on the “management’s best estimate of probable outflows”, HSBC said in the report.
“Its stock price has already weakened on the legal regulatory uncertainty,” Gordon said. HSBC fell 0.1 per cent to 676.9 pence on the London stock exchange yesterday. Its stock price has fallen 1.8 per cent in the past week, underperforming the benchmark FTSE 100, which has risen 1.8 per cent. But in Hong Kong, the stock rose 0.9 per cent to close at HK$84.85 yesterday, in line with the Hang Seng Index’s performance this week.
The group will post its third-quarter results on November 4. “I am not anticipating a material provision to be seen on its third quarter results,” Gordon said.