HSBC to pay $550 mn to settle toxic bonds lawsuit

13 Sep 2014

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HSBC has agreed to make a payment of $550 million in settlement of a US regulator's claim that it falsely represented the quality of mortgage bonds sold to US home finance giants Fannie Mae and Freddie Mac before the financial crisis, International Business Times reported.

Under the settlement between HSBC's North American unit and the Federal Housing Finance Agency (FHFA), the lender would pay $374 million to Freddie Mac and $176 million to Fannie Mae, according to an FHFA statement.

The FHFA said in the statement, "Only two of the 18 lawsuits FHFA filed in 2011 have not been resolved. FHFA continues to pursue a satisfactory resolution of these actions."

The bank faced accusations of making false representation to the government-backed agencies that loans underlying $6.2 billion of mortgage-backed securities, sold from 2005 to 2007, met underwriting guidelines and standards.

According to Reuters, HSBC had denied the charges and did not admit wrongdoing as part of the settlement.

The settlement comes as a planned trial was set to come up on 29 September in New York, which would have seen the lender slapped with $1.6 billion in damages.

Meanwhile FHFA lawsuits remain pending against Nomura Holdings and Royal Bank of Scotland Group (RBS) and Nomura Holdings.

Stuart Alderoty, senior executive vice-president and general counsel for HSBC North America, said in a statement, "We are pleased to have resolved this matter."

London-based HSBC is Europe's largest bank with extensive operations in the US. Its US division, which is the 9th largest bank in the US boasts $289 billion in assets, AP reported.

The settlement comes as the latest federal government agreement over actions related to the financial crisis that hit in 2008. The economy plunged into the deepest meltdown, sparked by vast sales of high-risk mortgage securities, since the Great Depression.

The securities turned toxic following the collapse of the housing bubble in 2007, losing billions in value.

The government bailed out Fannie and Freddie at the height of the financial crisis in September 2008 when they were on the verge of collapse. The companies received taxpayer aid totaling $187 billion and had since regained profitability with full repayment of bailouts (See: Freddie Mac's net worth turns negative, seeks $13.8 billion government funding).

The FHFA initiated proceedings against 18 financial institutions in 2011 over their sales of mortgage securities to Fannie and Freddie. The total price for the securities sold stood at $196 billion.

According to the agency it had now reached settlements with all but two of the banks.

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