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HSBC Finalizes Large Subprime RMBS Settlement

A large settlement being negotiated between the government and HSBC Holdings plc over the British bank’s role in the issuance of residential mortgage-backed securities has been finalized.

In August, a filing with the Securities and Exchange Commission indicated that HSBC had reached a settlement in principle with the Department of Justice.

The agreement would resolve alleged involvement by HSBC North America Holdings Inc. and various subsidiaries in the issuance of subprime RMBS.

On Tuesday, the Justice Department announced that it has agreed to the settlement with HSBC which includes a $765 million civil penalty.

HSBC allegedly told customers that it sampled at least a quarter of the loans securitized in subprime RMBS even though it didn’t.

The government alleges that investors “suffered major losses” on RMBS issued and underwritten by HSBC. The actions violated the Financial Institutions Reform, Recovery and Enforcement Act.

“HSBC chose to use a due diligence process it knew from the start didn’t work,” U.S. Attorney for the District of Colorado Bob Troyer said in the statement. “It chose to put lots of defective mortgages into its deals.  When HSBC saw problems, it chose to rush those deals out the door.”

HSBC disputes and does not admit the allegations.

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