A view of the HSBC bank logo on a wall outside a branch in Mexico City, Mexico, on June 14, 2024.
Enrique Romero | Reuters
HSBC said Monday it will recognize a provision of $1.1 billion in its third-quarter results following a court ruling in Luxembourg related to Bernard Madoff’s investment fraud case.
Herald Fund SPC sued HSBC’s Luxembourg unit in 2009, seeking restitution of securities and cash it said were lost in the fraud.
The court denied the HSBC unit’s appeal in respect of the Herald’s securities restitution claim, but accepted the unit’s appeal in respect of the cash restitution claim.
The bank will now file a second appeal before the Luxembourg Court of Appeal and added that, if unsuccessful, it will challenge the amount to be paid in subsequent proceedings.
Madoff was 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 being captured on December 11, 2008.
Among Madoff’s victims were director Steven Spielberg and actor Kevin Bacon, as well as dozens of ordinary investors. Madoff was sentenced to 150 years in prison and died in 2021.
In its 2025 interim report published in July, HSBC said Herald had sought restitution of securities and cash of $2.5 billion plus interest, or damages of $5.6 billion plus interest from HSBC.
HSBC, Europe’s largest lender, said several non-U.S. HSBC companies provided custody, administration and similar services to a number of funds whose assets were invested with Bernard Madoff Investment Securities.
The news comes a day before HSBC announces its results, with the bank saying the $1.1 billion provision will hit its common equity tier 1, or CET1, ratio by about 15 basis points. The CET1 ratio is a measure of a bank’s financial strength and is used to determine its ability to withstand difficulties.
Analyst estimates compiled by the bank on October 17 had forecast the CET1 ratio for the third quarter to be 128.9, up from 128.2 in the second quarter.
HSBC, which said the final financial impact could be “significantly different” given the pending appeals, is currently undergoing a restructuring under its CEO Georges Elhedery and will see the bank split its operations into four divisions.
The bank has said the reorganization will reduce costs by about $300 million this year, creating separate “eastern markets” and “western markets” sectors.
— CNBC’s Marty Steinberg and Scott Cohn contributed to this report.
