HSBC to Pay $1.5 Billion to End Class Action



The second quarter numbers for HSBC will take a painful hit with news that the bank has agreed to settle a long running legal case.

In an announcement to the Hong Kong and London exchanges, HSBC Finance Corporation (HSBC Finance) has announced a resolution to a 14- year shareholder class action based on events that took place prior to HSBC’s acquisition of Household International Inc. in 2003.

Difference of Opinions

The Household deal was brokered under the leadership of the then Chairman of HSBC Sir John Bond. However, one of his successors, Stephen Green was later quoted as saying that the purchase should «never have been undertaken.»

Having previously disclosed in public filings a potential exposure of up to $3.6 billion, HSBC Finance agreed to pay US$1.575bn to settle all claims in Jaffe v. Household International.

Second Quarter Hit

The case was filed in 2002, and a jury ruled for the plaintiffs in a 2009 trial. In May 2015, the US Court of Appeals for the Seventh Circuit reversed a partial final judgment against Household International Inc., the predecessor entity to HSBC Finance, and remanded the case for a new trial on loss causation and damages.

The settlement is subject to court approval and is expected to result in a pretax charge to HSBC Finance of approximately US$585m, including legal fees and expenses, in the second quarter of 2016.

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