HSBC to Pay $550M to FHFA for Mortgage-Issue Settlement

In a move to resolve its legacy issues dating back to the pre-crisis period, HSBC Holdings plc(HSBC) announced the settlement of a lawsuit that indicted it for selling risky residential mortgage-backed securities (RMBS). The company will pay $550 million to the Federal Housing Finance Agency (FHFA), the conservator for Freddie Mac (FMCC) and Fannie Mae (FNMA).

Of the total amount, HSBC will pay $374 million to Freddie, while Fannie will receive $176 million. The FHFA lawsuit deemed the bank guilty of misrepresenting facts about RMBS worth $6.2 billion that were sold between 2005 and 2007. Notably, the company did not admit to any wrongdoing while settling the case.

In 2011, the FHFA had filed lawsuits against 18 global banks accusing them of selling risky RMBS to Freddie and Fannie in the period preceding the financial crisis. The banks were accused of distorting facts related to quality of the underlying loans. Securities worth nearly $196 billion were sold to Freddie and Fannie by these banks.

The latest resolution by HSBC takes the amount recouped by FHFA through settlements to nearly $18 billion. However, cases against Nomura Holdings, Inc. and The Royal Bank of Scotland Group plc (RBS) still await conclusion.

Of late, HSBC has been embroiled in several probes and lawsuits. Though the above-mentioned settlement will slightly increase the expenses, it also removes a major litigation headwind.

Currently, HSBC carries a Zacks Rank #2 (Buy).

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