HSBC Holdings plc (ADR) (NYSE:HBC) (LON:HSBA) was hit with a record $2.46 billion (1.52 billion pounds) final judgment in a U.S. securities class action lawsuit.
The judgment, considered the largest in a securities fraud class action, was filed against a business formerly known as Household International Inc.
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HSBC bought household in 2002
HSBC Holdings plc (ADR) (NYSE:HBC) (LON:HSBA) bought Household International Inc. in November 2002 for $14 billion, one year after reports emerged about the U.S. lender’s alleged dubious lending practices. In their lawsuit, the plaintiffs claimed that Household artificially boosted its share price by engaging in predatory lending and hid the quality of its loan portfolio.
Tom Hals of Reuters notes almost all securities fraud class action cases are settled before going to jury.
HSBC Holdings plc (ADR) (NYSE:HBC) (LON:HSBA) merged Household business with another subsidiary to form the HSBC Finance Corporation. Chad Bray of The New York Times feels the deal was ill-fated for HSBC, as the bank had to write down tens of billions of dollars in loans and exiting its operations for consumer loans and mortgages in the U.S.
HSBC’s then chairman Stephen Green reportedly said in 2009 that the bank wished the deal to acquire Household International hadn’t been done, with the benefit of hindsight.
HSBC will appeal the ruling
The judgment against HSBC Holdings plc (ADR) (NYSE:HBC) (LON:HSBA) was delivered by U.S. Judge Ronald Guzman in Chicago. The ruling said the fine consisted of $1.48 billion in damages and almost $986 million in prejudgment interest. HSBC was also ordered to pay post-judgment interest during the appeal.
HSBC indicated it would appeal the ruling, and the bank believes it has a strong argument.
In its 2013 interim report, HSBC Holdings plc (ADR) (NYSE:HBC) (LON:HSBA) indicated if it loses the appeal, the fine could exceed $3.5 billion. In its interim report, HSBC made provision for the case based on its management’s best estimate or probable outflows.
The bank believes it has meritorious grounds for appeal on matters of both liability and damages and will argue on appeal that damages should be nil or a relatively insignificant amount.
According to Robbins Geller Rudman & Dowd, the law firm representing the shareholders indicated it continued to challenge objections by the defendants to over 25,000 additional claims that, if approved, could exceed $650 million, besides taking the total class of claims to over 45,000 plaintiffs.