HSBC Holdings (HSBC) (GB:HSBA) is bracing for a financial setback tied to one of the biggest frauds in history. Ahead of its Q3 earnings, the bank revealed that it could take a $1.1 billion loss due to ongoing legal battles linked to Bernie Madoff’s Ponzi scheme. The potential hit has put extra attention on HSBC’s upcoming results, as investors weigh how much this liability could impact profitability and outlook. Following the news, HSBC U.S.-listed shares were down by 0.63% in pre-market trading, while its London-listed stock was trading 1.04% lower as of this writing.
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HSBC Holdings is a global bank that serves more than 40 million customers globally. Notably, it is one of Europe’s largest banks by assets.
Madoff Ponzi Scheme Fallout
A Ponzi scheme is a type of fraud where the organizer tricks people by promising high returns but does not actually invest their money.
Notably, the Madoff Ponzi Scheme was the largest Ponzi scheme in history, run by Bernie Madoff in the U.S. He managed billions of dollars and claimed safe and steady profits for his clients, including banks and wealthy investors. When the scheme fell apart in 2008, investors lost tens of billions of dollars. Madoff was arrested and later sentenced to 150 years in prison, but he died in 2021. The fallout led to years of lawsuits and efforts to recover funds for victims.
HSBC Braces for $1.1B Madoff Settlement
On Monday, HSBC announced that it will set aside $1.1 billion to cover a lawsuit from investors who lost money in Madoff’s Ponzi scheme. The decision comes after a Luxembourg court rejected HSBC’s appeal in the long-running case. This provision relates to a 2009 claim filed by Herald Fund SPC, a European investment fund that had placed money into Madoff’s operation. HSBC’s Luxembourg unit served as custodian for that fund’s investments.
The bank said it will record this charge in its upcoming Q3 earnings, which will slightly reduce its key capital strength metric (CET1 ratio) by 0.15 percentage points. Nonetheless, the bank stated that the final financial hit could end up being very different, since the case is still under appeal.
Meanwhile, analysts expect HSBC’s CET1 ratio for Q3 to be 14.5%, slightly below the 14.6% reported in Q2, according to estimates compiled on October 17.
Is HSBC a Good Stock to Buy Now?
According to TipRanks consensus, HSBA stock has received a Moderate Buy rating based on seven Buys and eight Holds assigned over the last three months. The HSBC stock price target is 1,081.71p, which is 9% above the current trading level.
