HSBC announced on Monday that it will record a provision of $1.1 billion in its third-quarter performance after a court decision in Luxembourg concerning the Bernard Madoff investment fraud case.
Herald Fund SPC filed a lawsuit against the HSBC Luxembourg branch in 2009, seeking the recovery of securities and cash it alleged was lost in the fraud.
The court dismissed the appeal by the HSBC unit against the claim of securities restitution by Herald, but affirmed the appeal by the unit against the cash restitution claim.
The bank has now lodged a second appeal with the Luxembourg Court of Appeal and further argued that in the case of defeat, the bank would appeal the sum to be paid in future proceedings.
Madoff was termed the genius behind the biggest investment fraud in the U.S., where he defrauded clients to the tune of up to $65 billion.
He was convicted in 2009 of a scheme that began in the early 1970s, stealing from over 40,000 individuals in 125 countries over four decades, before being apprehended on December 11, 2008.
Among the victims of Madoff were director Steven Spielberg and actor Kevin Bacon, along with scores of average investors. Madoff was sentenced to 150 years imprisonment and he died in 2021.
In its interim report of July 2025, HSBC stated that Herald had alleged a restitution of securities and cash of $2.5 billion and interest, or damages of $5.6 billion and interest by HSBC.
HSBC, the largest lender based in Europe, reported that other non-U.S. branches of HSBC offered custodial and administration and related services to a group of funds, the assets of which were invested with Bernard Madoff Investment Securities.
The announcement is a day before HSBC is set to declare its results, and the bank indicated that the $1.1 billion provision will affect its Common Equity Tier 1 or CET1 ratio by approximately 15 basis points.
The CET1 ratio is a financial health indicator of a bank, and is employed to check the capability of a bank to survive distress.
Analysts’ estimates compiled by the bank as of October 17 estimated the CET1 ratio of the third quarter at 14.5 percent, compared to 14.6 percent in the second quarter.
Director of Equity Research for Asia at Morningstar, Lorraine Tan, reported to CNBC that she did not believe that the $1.1 billion charge would affect operations, but would be a slight burden on sentiment because HSBC was “hoping that these one-off impairments were cleaned up after the interim write-offs.”
According to the bank’s interim report, HSBC recorded a rise in its allowance against expected credit losses as of June to $500 million more than it was on December 31, which includes adverse foreign exchange movements of $400 million and write-offs of $2 billion.
The third quarter assumption made by Morningstar is that the HSBC CET1 ratio will stand at approximately 14.4 percent and remain at 14 percent within the next 10 years.
HSBC, which reported that the ultimate financial outcome of the ruling could be “significantly different,” following appeal proceedings, is in the middle of a restructure under its CEO, Georges Elhedery, and will be a bank that divides its operations into four areas.
The bank has reported that the reorganization will reduce the costs of the bank by approximately $300 million this year, creating separate “Eastern markets” and “Western markets” sectors.
