The latest development is tied to one of the largest investment frauds in history. Madoff admitted in 2009 to operating a Ponzi scheme that authorities said spanned four decades and affected more than 40,000 investors worldwide. Losses have been estimated as high as $65 billion. Madoff, who died in 2021, was sentenced to 150 years in prison. High-profile victims included filmmaker Steven Spielberg and actor Kevin Bacon. A detailed overview of the case is maintained by the U.S. Department of Justice, available here.
According to HSBC, several of its non-U.S. entities provided custodial, administrative and related services to funds whose assets were invested with Bernard L. Madoff Investment Securities. The Herald Fund dispute is the most material of these legal exposures. By booking the $1.1 billion charge, the bank expects its Common Equity Tier 1 (CET1) capital ratio to decline by roughly 15 basis points in the third quarter. Analyst consensus compiled by HSBC on Oct. 17 projected a third-quarter CET1 ratio of 14.5%, down slightly from 14.6% at the end of the second quarter.
Morningstar’s equity research team anticipates that the CET1 ratio will stand near 14.4% for the period and remain close to 14% over the next decade. The research firm said the court-related charge is unlikely to affect day-to-day operations but could weigh modestly on investor sentiment, since management had indicated earlier that one-off impairments were largely behind the bank.
HSBC’s interim report showed an increase of $500 million in allowances for expected credit losses as of June 30 compared with Dec. 31. That figure includes $400 million in adverse foreign-exchange movements and $2 billion in write-offs. Separately, the bank is implementing a restructuring program under Chief Financial Officer and incoming Chief Executive Georges Elhedery. The overhaul will divide the institution into four operating divisions, grouped into “Eastern markets” and “Western markets,” with an expected cost reduction of about $300 million this year.
Europe’s largest lender has been adjusting its portfolio and cost base amid slower global economic growth and higher funding costs. The restructuring follows earlier moves to increase focus on Asia, which already generates the majority of the bank’s profit. In addition, HSBC has been trimming underperforming businesses and reallocating capital toward wealth management and commercial banking activities.
Shares of HSBC Holdings plc fell 0.29% in Hong Kong trading following the announcement. Investors will receive further details on the financial impact when the bank releases its third-quarter results on Tuesday.
Crédito da imagem: Henry Romero | Reuters
