HSBC Holdings Plc (NYSE:HSBC) will pay $550 million to resolve a U.S. regulator's claims that the British bank made false representations in selling mortgage bonds to Fannie Mae and Freddie Mac before the financial crisis.
The settlement announced Friday between the bank's U.S. unit and the Federal Housing Finance Agency, the conservator for the two government-controlled mortgage finance companies, came less than three weeks before a Sept. 29 trial in New York, where HSBC has said it could have faced up to $1.6 billion in damages.
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The deal is the latest arising from 18 lawsuits that the FHFA filed in 2011 to recoup losses on $200 billion in mortgage-backed securities sold to Fannie Mae and Freddie Mac, which the U.S. government took into conservatorship amid the 2008 economic crisis.
The lawsuit accused HSBC of falsely representing to Fannie Mae and Freddie Mac that loans underlying $6.2 billion of mortgage-backed securities sold from 2005 to 2007 met underwriting guidelines and standards.
HSBC has denied the allegations, and did not admit wrongdoing as part of the settlement. The bank stopped issuing residential mortgage-backed securities in 2007.
"We are pleased to have resolved this matter," Stuart Alderoty, general counsel for HSBC North America, said in a statement.
Under the settlement, HSBC will pay $374 million to Freddie Mac and $176 million to Fannie Mae, the FHFA said.
Along with settlements with other banks including Bank of America Corp, Deutsche Bank AG and Morgan Stanley, the FHFA has so far recovered nearly $17.9 billion. Last month, Goldman Sachs Group Inc agreed to a settlement that the FHFA valued at $1.2 billion.
Lawsuits remain pending against Nomura Holdings Inc and Royal Bank of Scotland Group Plc. The FHFA said it "remains committed to satisfactory resolution of these actions."
Many of the banks settled after U.S. District Judge Denise Cote, who has overseen most of the FHFA litigation, issued several rulings making it harder to mount defenses.
The deal with HSBC came after it last month lost a bid to dismiss the case as untimely, in light of a recent U.S. Supreme Court ruling.
The case is Federal Housing Finance Agency v. HSBC North America Holdings Inc, U.S. District Court, Southern District of New York, No. 11-06189.
(Reporting by Nate Raymond in New York; Editing by Meredith Mazzilli and David Gregorio)