British multinational banking and financial services firm HSBC has agreed to pay $765m to the US Department of Justice (DOJ) for the settlement of claims on residential mortgage-backed securities (RMBS).
HSBC has signed an agreement with the DOJ to end multi-year investigation on its legacy securitization, issuance and underwriting of RMBS issued between 2005 and 2007.
During the period, the federally-insured financial institutions and others recorded major losses from investing in RMBS issued and underwritten by HSBC.
HSBC USA president and CEO Patrick Burke said: “Since the financial crisis, HSBC has been strengthening our culture, processes and internal controls to ensure fair outcomes for our clients. 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.”
As per terms of the deal, HSBC North America Holdings will pay $765m civil monetary penalty to the DOJ, of which $492m will be paid by HSBC USA.
HSBC will pay the amount as a civil penalty pursuant to the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which authorizes the federal government to seek civil penalties against financial institutions that violate various predicate offenses such as wire and mail fraud.
The US DOJ alleged that HSBC breached FIRREA by misrepresenting to investors the quality of its RMBS and the due diligence procedures it claimed it would use to ensure that quality.
The US Attorney for the District of Colorado Bob Troyer said: “HSBC chose to use a due diligence process it knew from the start didn’t work. It chose to put lots of defective mortgages into its deals. When HSBC saw problems, it chose to rush those deals out the door. When deals went south, investors who trusted HSBC suffered.
HSBC USA serves as a holding company for its subsidiaries, including HSBC Bank USA. It provides a range of traditional banking products and services to individuals, high net worth individuals, small businesses, corporations, institutions and governments.
HSBC North America Holdings serves US customers in the retail banking and wealth management, commercial banking, private banking, and global banking and markets.