U.S. Markets closed

HSBC Braves Legal Woes

Zacks Equity Research

The stock price of HSBC Holdings plc (HBC) remained almost stable since a $2.46 billion fine was imposed on its U.S. wing last Thursday. While $1.48 billion of the total amount charged was for the actual financial losses, the remaining was the prejudgment interest.

It was alleged that Household International (acquired by HSBC in 2003 and renamed as HSBC Finance Corp) and its former employees William Aldinger, David Schoenholz and Gary Gilmer adopted predatory lending practices. They were accused of misguiding investors with respect to the quality of loans and its accounting since Mar 23, 2001 through Oct 11, 2002.

This violated the federal securities laws and consequently a lawsuit was filed against the company by shareholders – including James Glickenhaus of Glickenhaus & Co. – in the later half of 2002. The case has been trailing since then.

Earlier, in 2009, a jury in Chicago ruled in favor of the plaintiffs but it was challenged by HSBC. This time again, HSBC intends to counter the charge, by appealing against the judgment.

In August this year, Reuters reported that the bank might have to pay a sum of $1.6 billion as part of its settlement with Freddie Mac (FMCC). The settlement includes the resolution of all outstanding and potential repurchase claims relating to misrepresentations of loans originated and sold directly to Freddie Mac by HSBC between 2005 and 2008.

Among other banks, in August, Citigroup, Inc. (C) announced a similar settlement with Freddie Mac worth about $395 million. Similarly, Bank of America Corporation (BAC) announced an agreement with Fannie Mae worth about $10.3 billion in Jan 2013.

Currently, HSBC holds a Zacks Rank #3 (Hold).

Read the Full Research Report on FMCC
Read the Full Research Report on C
Read the Full Research Report on BAC
Read the Full Research Report on HBC

Zacks Investment Research