HSBC in $765m settlement with US Department of Justice

HSBC has reached a $765m (£582.3m) settlement in the US over its sale of mortgage-based securities during the run-up to the financial crisis.

The deal resolves claims by the US that HSBC misled buyers about the quality of the securities, which were backed by pools of home loans.

The issues, which occurred between 2005 and 2007, led to major losses by investors, prosecutors said.

As is common in such settlements, HSBC did not admit or deny the claims.

In a statement, the bank said it had since strengthened its internal controls and was “pleased” to have resolved the probe.

“The US management team is focused on putting historical matters into the rear view mirror and completing the turn-around of HSBC’s US operations,” said Patrick J Burke, who heads the bank’s US unit.

HSBC’s settlement was announced Tuesday by federal prosecutors in Colorado.

It is one of many agreements resolving investigations of bank handling of residential mortgage-backed securities that authorities have announced since the financial crisis.

Prosecutors have accused companies that created and sold the securities – bonds that were backed by home loans – of overlooking the risks that families would not be able to pay, at times deliberately.

‘Abuse of trust’

In this instance, the US Department of Justice said HSBC misled investors about the process it used to evaluate the investments.

It also misrepresented the quality of the securities even though internal reviews had raised concerns, the US said.

At one point, an HSBC trader even said that a security planned for sale by HSBC would “suck”, according to the US.

The activities led to major losses by investors and contributed to a crisis of foreclosures that hit the US, said Bob Troyer, US Attorney for the District of Colorado.

“HSBC made choices that hurt people and abused their trust,” he said. “If you make choices like this, beware. You will pay.”

Residential mortgage backed securities were a major contributor to the 2008 financial crisis, after the crash of the US housing market exposed investors to losses.

They also stirred outrage at the local level by complicating the resolution of mortgages that went into default.

HSBC, which handled about $24bn of residential mortgage-backed securities between 2005 and 2007, has faced numerous lawsuits for those activities.

In 2016, it agreed to pay more than $400m to the US to resolve claims about its servicing of home loans.