HSBC to pay $765 million for role in global financial crisis a decade ago

The settlement resolves one of the last remaining US investigation from the mortgage meltdown

HSBC has agreed to pay $765 million to resolve allegations it passed on toxic mortgage securities to investors prior to the global financial crisis. AFP

HSBC will pay $765 million (Dh2.8 billion) to settle allegations that it sold defective residential mortgage-backed securities, resolving one of the last remaining US investigations stemming from the mortgage meltdown a decade ago.

The sum, announced Tuesday by US Attorney Bob Troyer in Colorado, is substantially lower than the billions paid by other banks to resolve misconduct linked to these toxic securities. London-based HSBC wasn’t a major player in the market.

With Wells Fargo's agreement in August to pay $2bn and Royal Bank of Scotland’s deal to pay $4.9bn that same month, the US Department of Justice is now near the end of its decade-long effort to extract penalties for the conduct that led to the financial crisis of 2008.

The biggest settlements, struck in 2013 and 2014, called for JPMorgan Chase and Bank of America to pay $13bn and $17bn, respectively, to resolve their cases.

Unlike prior mortgage-related settlements with the Obama administration, this one doesn’t impose consumer relief or payments to state or federal agencies. For example, Citigroup’s $7 billion settlement included payments of $2.5bn to help consumers and $500m to federal agencies and state governments.

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HSBC entered into the agreement without admitting liability or wrongdoing, according to an emailed statement from the bank. The Justice Department had said that HSBC’s process for verifying the quality of the loans in its mortgage securities broke down from 2005 to 2007, with managers ignoring or overruling compliance warnings. In the process, it misled investors, the government said.

“We are pleased to put this investigation related to activity that occurred more than a decade ago behind us,” HSBC’s US chief executive officer, Patrick Burke, said in the statement. “The US management team is focused on putting historical matters into the rear view mirror and completing the turnaround of HSBC’s US operations.”

The Justice Department cited instances in which it says HSBC bankers knew they were selling bad loans to investors. In 2007, for example, one HSBC trader, referring to a residential mortgage-backed security the bank was about to issue, said “It will suck”, according to the Justice Department.