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HSBC to pay US$765mln settlement over sale of toxic mortgage-backed securities

HSBC has become the latest major bank to settle over the mis-selling of residential mortgage-backed securities, following penalties paid by RBS and Barclays
HSBC said it was pleased to have resolved the investigation

HSBC Holdings PLC (LON:HSBA) has agreed to pay a US$765mln settlement to US authorities over claims it sold toxic mortgage-backed securities in the lead up to the financial crisis.

The US Department of Justice (DoJ) accused the bank of knowingly selling “contaminated” home loans to investors from 2005 to 2007.

The DoJ said HSBC misled buyers about the quality of the securities, leading to major losses for investors.

Bob Troyer, US attorney for the District of Colorado, said HSBC made choices that “hurt people and abused their trust”.

"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,” he said.

"When HSBC saw problems, it chose to rush those deals out the door. When deals went south, investors who trusted HSBC suffered.”

HSBC said it was pleased to have put the issue behind it and has improved its internal controls.

READ: RBS to pay US$4.9bn to US DoJ to settle mortgage-backed securities mis-selling claims

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

HSBC has become the latest major bank to settle with the DoJ over the mis-selling of residential mortgage-backed securities. Earlier this year Royal Bank of Scotland Group PLC (LON:RBS) paid a US$4.9bn settlement and Barclays PLC (LON:BARC) paid US$2bn.

READ: Barclays agrees US$2bn settlement in US over mortgage-backed securities lawsuit

The sale of residential mortgage-backed securities was a major contributor to the global financial crisis. A crash in the US subprime mortgage market led to the crisis with the collapse of investment bank Lehman Brothers in September 2008. 

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