Global banking behemoth HSBC Holdings is reportedly negotiating with the U.S. Department of Justice to potentially resolve open investigations regarding the company’s mortgage securities activities more than 10 years ago.
According to coverage from Bloomberg, HSBC “has had at least one meeting with the Justice Department and is scheduled to meet again.” However, “The two sides remain far apart in discussions with Justice Department lawyers, while Trump administration appointees have yet to weigh in,” Bloomberg reports.
In its annual report for 2016, the company confirmed that HSBC Bank USA sponsored and/or sold loans into mortgage-backed securities (MBS) that were underwritten by HSBC Securities (USA) Inc. – a total of about $24 billion between 2005 and 2007. Those securities, which HSBC said had a total outstanding principal balance of approximately $4.6 billion as of the end of 2016, were sold to third parties during the global frenzy for MBS a decade ago.
HSBC said that “the scale of its mortgage securitization activities was more limited in relation to a number of other banks in the industry” but did acknowledge that it has received “subpoenas and requests for information” from entities including the Department of Justice and the Massachusetts attorney general’s office.
These inquiries could lead to potential actions pursuant to the Financial Industry Reform, Recovery and Enforcement Act (FIRREA). HSBC said it “continues to cooperate with the DoJ’s investigation,” but “disagrees with the DoJ’s preliminary view” that it is subject to liability under FIRREA.
HSBC did, however, say that “any such resolution could result in significant penalties and other costs.”
Bloomberg’s coverage does not specify exactly what is being discussed, who is involved or what penalties might be negotiated. Neither the Justice Department nor HSBC commented on the article.
However, there is a clear history of aggressive action against banks and other financial institutions to hold them accountable for their roles in the collapse of the MBS market specifically and global economy generally.
In fact, HSBC itself settled with the Federal Housing Finance Agency (FHFA) in 2014 to resolve matters related to HSBC’s sales of loans to Fannie Mae and Freddie Mac between 2005 and 2007. That settlement totaled $550 million.
And separately, the DOJ, HUD and the Consumer Financial Protection Bureau joined with 49 state attorneys general and the District of Columbia’s attorney general to reach a $470 million settlement with HSBC Bank USA NA and its affiliates last fall “to address mortgage origination, servicing and foreclosure abuses.”