By Maria Armental
A unit of British bank HSBC Holdings PLC has reached a preliminary agreement to pay $1.58 billion to settle a shareholder class-action complaint over securities fraud tied to the bank's U.S. subprime lending.
The proposed settlement -- which would cover those who owned Household International stock anytime between March 23, 2001, and Oct. 11, 2002 -- is subject to court approval. HSBC estimated it would book a $585 million charge, before taxes, in the second quarter.
The London-based bank, Europe's largest by assets, had previously estimated the financial exposure from the shareholder claims at around $3.6 billion.
A tentative agreement was reached on June 6, just hours before jury selection was to start, said Mike Dowd and Dan Drosman, partners with Robbins Geller Rudman & Dowd LLP and lead trial lawyers for the plaintiffs, including one-time investment firm Glickenhaus & Co., PACE Industry Union Management Pension Fund, and the International Union of Operating Engineers Local No. 132 Pension Plan.
"We are obviously delighted with the result after 14 years," Mr. Dowd said.
The case was filed in August 2002 against Household International Inc., the predecessor of HSBC Finance, and accused the company and three former executives of misrepresenting the interest rates it charged consumers for loans and hiding prepayment penalties in loan terms. That summer, Household International, at the time one of the largest U.S. lenders to people with poor credit history, had to restate nine years of financial results, lower profit by $386 million.
HSBC paid more than $16 billion in 2003 for the Illinois-based consumer lender, in what was seen as a bold move to expand in the U.S. But the bank, which headed into the financial crisis with $160 billion of U.S. subprime mortgages, later retreated after big losses.
Write to Maria Armental at email@example.com